Remember the days when you first learned how to swim or ride a bike as a kid? It probably looked exciting at first, but once you dipped your toe into the water or put your foot to the pedal – fear took over.
Learning how to do something that has a potentially painful outcome if you mess up isn’t easy – but you did it anyway despite your fear. Now, riding a bike down East Coast Park or taking a swim at your local recreation centre is an enjoyable experience.
Investing is a lot like swimming or biking in a way – it’s something most of us want to do in our 20s and 30s. But when it comes to actually jumping into the investment game, some of us back out over the fear of losing money.
Why Invest in the First Place?
In our lifetimes there are only two sure-fire ways to earn the cash we need to set ourselves up for retirement success:
- Earn income through employment (or entrepreneurship)
- Earn income (passive) through our investments (stocks, bonds, property, etc.)
Well, there are other ways to generate retirement savings as well – but for the most part, your salary and investing will make up the bulk of your nest egg. And of course, the cash you earn from your job feeds further investments so your nest egg grows.
That’s pretty damn important considering that even if you do save 10% to 20% of your income and store it under your bed or in a savings account – you’re actually throwing money away without even knowing it.
You can thank inflation for that.
Why Are We Afraid to Invest?
Fear of investing can come from many different sources. For some people, the fear comes from a more emotional source – they hear news stories about people who lost their retirement savings through bad investing and don’t want to repeat the same mistake.
For others, the fear comes from a more rational source – they falsely believe that if you don’t invest, they’ll never get taken for a fool and lose their hard-earned money.
Ego can also play a role in making people too afraid to invest. For some, the very thought of looking like an amateur who loses money on investments is enough keep them from getting into the game – even though investments WILL go up and down by nature.
Knowledge – The Best Way to Get Past Your Fear of Investing
Ever hear the phrase “knowledge is power”? Well, that’s certainly true with investing (or just about any other activity for that matter). Seriously, the more you learn about something, the easier it will be to do it successfully.
Don’t make the mistake of jumping into the deep end of the pool if you don’t know how to swim. Take things slow, learn the basics and gradually improve your knowledge when it comes to investing so that your fear gets replaced by caution, which then leads to action.
Getting past your fear means learning the following:
- Learning what kind of investor you are and understanding your risk tolerance
- Learning about the various financial products such as stocks & bonds, ETFs, REITs, property and alternative investments
- Learning about investment diversification
- Learning to set investment goals
Here are a few extra tips on how to get past your fear of investing:
- Choose the Right Investment Products for Your Risk Appetite: High-yield investments such as stocks have better returns but the risk is higher. Low-yield investments such as bonds have low returns but are quite safe. Having a balance of both (diversification) but in varying ratios can help you get past your fear of losing “too much money”, especially if you want to play it safe by having a higher ratio of “safe” investments in your portfolio.
- Choose an Investment Area that You Enjoy: Investing can be fun too. While learning about investing, you might find certain investment products to be more exciting than others – maybe you might find stocks or property personally appealing. Pursue in-depth knowledge of these investments so you can make them a “specialised” part of your portfolio.
- Use Your Non-Investment Years Wisely: If you’re saddled with loads of debt, your first instinct should be to pay off it off first and establish an emergency fund before even thinking about buying your first stock or bond. Use this time wisely by learning more about investing and funds permitting – taking your first “dips” into the investment pool by making small investments – in fact, many banks offer blue chip investments plans where you can invest as low as $100+ a month.
*If you want to learn more about the basics of investing, make sure you check out our Investing Learning Center.
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