Why You’re Scared of Investing (and how to overcome it)

Scared of investing

My heart is racing. My hands are so wet from my sweat that I can’t even get a good grip on the computer mouse.

After hearing many stories from people who lost money, I feared investing. But I still to get in on the game. I wanted to get rich badly.

But my stomach felt like it was inside out. I collected all the courage inside me. Then, I finally did it. Boom! I bought my first stocks.

This was in 2007, and I STILL remember how I felt. That’s how scary investing is. Over the years, I started to control my emotions to a degree that I don’t even feel the slightest itch when I invest my money.

That’s because I found ways to overcome my fear of investing.

What follows is a list of 5 common reasons most people fear investing and a practical way of overcoming the fear.

1. Fear of losing money

The fear of losing money is a primal instinct, deeply ingrained in our psyche. It’s tied to our survival instincts. After all, for much of human history, losing resources could mean life or death.

This is reflected in the concept of loss aversion:1Source: Econometrica The pain of losing is psychologically twice as powerful as the pleasure of gaining.

This means we’re more likely to avoid investing because we fear the potential losses more than we value the potential gains.

Overcoming it: The founder of modern-day investing, Benjamin Graham, famously said:

”The investor’s chief problem—and his worst enemy—is likely to be himself.”

To overcome this fear, we need to change our mindset. First, understand that investing isn’t gambling.

It’s about making calculated decisions based on research and analysis. Second, diversify your portfolio.

As the saying goes, don’t put all your eggs in one basket when you start. While many successful investors got rich by concentrating on their portfolios, I don’t think it’s wise to start picking individual stocks. This is also why many people get scared of investing.

You’re much better off buying a broad index like the S&P 500 when you start. You can concentrate on your individual investments later.

2. Lack of knowledge

Investing can seem intimidating if you don’t understand how it works. This fear stems from the Dunning-Kruger effect, a cognitive bias where people with low ability at a task overestimate their ability.

This leads to a paradox: the less you know about investing, the more confident you might feel, leading to risky decisions.

But as you learn more, you realize how much you don’t know, which can lead to fear and hesitation.

Overcoming it: Knowledge is power. Start by educating yourself about the basics of investing.

Read books, listen to podcasts, take online courses. As legendary investor Warren Buffett said:

”Risk comes from not knowing what you’re doing.”

The more you understand investing, the more confident you’ll become. Just remember you also don’t need to have a PhD in Finance to be a good investor. Basic knowledge is enough.

3. Fear of falling behind

The fear of falling behind, also known as FOMO (fear of missing out), often prevents people from building wealth in the stock market.

Humans seem to be naturally competitive. Social media makes this even more visible, as people feel unsatisfied when they watch other folks live a “better” life. We tend to define our worth based on how we stack up against others.

This behavior sometimes translates to our investing strategy. Which leads to risky behavior, such as jumping on an investment bandwagon without doing your research.

Overcoming it: Remember that investing is a long-term game, not a get-rich-quick scheme.

As Peter Lynch, one of the most successful investors of all time, said:

”The real key to making money in stocks is not to get scared out of them.”

Focus on your financial goals and stick to your investment plan, regardless of what others are doing.

4. Reacting to market volatility

Market volatility can be scary. When the market takes a downturn, our natural instinct is to panic and sell.

This reaction is linked to the fight-or-flight response. I experienced that feeling when I lost around 60% of the money I first invested in the stock market.

Overcoming it: It’s crucial to stay calm and stick to your long-term investment plan during market volatility.

The economist Paul Samuelson said it well:

”Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”

What do you do when you paint your walls? You leave it alone and simply get on with your life. Do the same with your investments.

5. Fear of commitment

Investing often means locking away your money for a significant period, which can feel daunting.

There is always the fear of uncertainty. What if the market suddenly crashes and you need to use that money after all? What if you suddenly need to take a one-month vacation, but don’t have the money for it? These fears keep many people scared of investing.

When you get down to it, there are two main goals that every investor aims for: Liquidity and growth. Liquidity is about how easily you can turn an investment into cash without losing its value.

It’s important because having liquid assets means you can quickly access funds for emergencies or unexpected expenses. On the flip side, growth is all about increasing value over time. This is crucial for building wealth and reaching financial goals like retirement or buying a house.

But when it comes to investing, you can’t have total liquidity and maximum growth simultaneously; there’s always a trade-off. The key is finding the right balance between the two.

Overcoming it: Maintain an emergency fund that covers 3-6 months of living expenses.

This will give you the peace of mind to invest your other funds without worrying about accessing them in an emergency.

Embrace the future: Conquer your fears today

Always remember this as you’re investing: The regret of not taking action today could be far greater than any fear you’re experiencing now. Think about that whenever you find yourself scared of investing.

Imagine yourself 10, 20, or even 30 years from now. You look back on your life and realize you let fear dictate your financial decisions.

You missed out on opportunities to grow your wealth, to secure your future, to provide for your loved ones. That regret can be a heavy burden to bear.

We’re more likely to regret the things we didn’t do than the things we did. And when it comes to investing, the cost of inaction can be high.

Yes, there will be risks. There is always risk in every part of life. But as long as you invest sustainably and consistently, you will grow your wealth in the long term.

As American entrepreneur and motivational speaker, Jim Rohn, said:

“We must all suffer one of two things: the pain of discipline or the pain of regret.”

Choose wisely.

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