Money

How To Overcome Your Fear Of Investing, In Four Easy Steps

Starting an investment portfolio can feel intimidating. Most of us weren’t raised to feel comfortable with investing. Add to that memories of the stock market meltdown during the GFC, the indecipherable lingo and complicated products and it feels like a gamble where you stand to lose all your savings.

It’s unsurprising then that recent surveys show that globally 65% of millennials are keeping their savings in cash rather than investing it.

Why investing matters

When it comes to money, the safe option is not necessarily the best option. With current low interest rates, money in the bank isn’t growing as fast as it could.

Not investing comes down to a fear of losing money and it turns out people are more scared of that, than the potential gains.

Australian researchers have found that the gap between financial knowledge and action is confidence. Essentially, a person with high confidence in their ability to manage their money is more likely to invest compared to someone with financial knowledge only.

So after reading a ton of investing books and online resources, boosting your confidence is the essential ingredient to overcoming your investing fears and taking action.

Get a taste for success

Simply getting started is one of the most powerful ways of conquering fear. Stanford psychologist Albert Bandura has found that successfully accomplishing a task is the fastest and most effective route to increased self-belief.

Experiencing success builds the belief in yourself that you can be a successful investor and each new accomplishment adds to that feeling. This principle is at work every time you’ve mastered something, whether it was a new job, doing your taxes or learning to cook.

But how do you get started if you feel completely stuck? Easy, by harnessing the power of small wins.

Set yourself up for a win by starting small. You can get started today simply by opening up an account which is generally free. Then instead of throwing in all of your savings at once, choose a sum to invest that won’t make or break you. You can start investing with as little or as much as you feel comfortable with.

This will allow you to feel like you’re making progress, boosting your sense of confidence and creating the momentum that keeps you moving forward.

Live vicariously through your friends

Psychologist Albert Bandura suggests that looking to others in your social circle is another powerful way to boost your financial confidence. Seeing someone similar to yourself, like a respected friend, successfully investing raises your belief in the fact that you can do it too.

So go on the lookout for role models in your life with who you can connect with about investing and live vicariously through their experiences. Trawl Facebook, ask your colleagues or even join an investing group to get talking to people just like you.

Don’t worry about the market

The news media is not your greatest ally in overcoming a fear of investing. Short term market events are sensationalised for today’s news with speculation of the next market crash or a hot new stock.

In reality, research shows that those who take a more conservative hands-off approach and invest for the long term, tend to do better.

Rather than worrying about the ups and downs of the market, or trying to choose the right time, just focus on getting started with investing.

Warren Buffett the world’s greatest investor advocates playing the long game. In his latest letter to shareholders, he wrote:

“Personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period… will almost certainly do well.”

Manage your emotions with a plan

If you’re nervous about the market, setting up an investment strategy allows you to manage your emotional responses. The market is volatile and without a good plan you could find yourself wanting to run for the exit at every down turn.

By taking a strategic approach that involves regularly investing at predefined intervals – a process known as dollar-cost averaging, it’s easier to take the emotion out of the equation.

ASIC recommends that an easy way to do this is to set up a regular debit from your cash account into your fund.

Take action

Fear of investing in the short term makes sense. But looking into the future, if it stops you from taking action you could miss out on a lot of money over your lifetime. So take that small step to get started today, and overcome your fears.


Eliza Morawska is a Brisbane based freelance writer and personal finance blogger. When she isn’t trying to figure out how to live better for less, she’s on the hunt for a good coffee. You can find her on her website Money Meet Mind.