Overcoming the fear of investing

Investing is the most important element of our financial future — but sometimes it takes a while before we really get it, so to speak.

Fortunately, I think it's fair to say most of the readers here at Get Rich Slowly get it. But I'm willing to bet that there are still a few who might get the concept but have yet to put it into action.

Biggest Success Factor: Pull the Trigger

There are many reasons why investing believers have not turned into investing doers. These two come immediately to mind:

  • They don't think they have enough money.
  • They have fears about inflation or other extraneous factors they can't control, and so forth.

Those reasons may sound valid, like the reasons kids offer when they are told to brush their teeth before going to bed. But no matter how valid the reasons sound, they still don't remove the simple fact that, if you don't invest now (and you continue not to invest), you will discover somewhere down the road that retirement is not an option for you.

I've spent a lot of time interacting with people who invest and those who don't, and I've discovered something few people talk about: the overwhelming majority of people who get started with any form of investing, stay at it. And the ones who don't, don't.

Action Reinforces Action

I can't base it on any scientific evidence, but I believe the biggest single factor for your future financial well-being is simply to get started investing. The human mind is wired in such a way that, once we begin with something, we acquire an emotional attachment to it (an investment, if you will), and we will make significant sacrifices to keep that thing going, whatever it is. It may be allegiance to a political party or figure, a cause, or values like eating correctly, respecting the environment, and, of course, getting rich slowly.

Our minds will continuously reinforce the positions we take: if I'm committed to eating at McDonald's, I will only read things (down to silly jokes) which reinforce my position. That is also true for people who don't invest. Just like the McDonald's customer will mentally agree that stuff is slow poison but continue to eat there nevertheless, the people who don't invest might nod their heads sagely and agree that investing is essential to their future financial health … and continue on without investing.

How Do You Break the Inaction Mindset?

The key to success, therefore, I believe, is to simply break the bad habit/mindset and replace it with the healthier one. Easily said, you might say, but …

In hundreds of conversations by email and in person, I've concluded the biggest thing holding people back from getting started on their investing careers is very simple: They just don't know how to get started.

I know it held me back till I was over 50 … and I had a graduate education in money matters and, in fact, made good money. The biggest thing which held be back, though, was: I didn't know what to do to get started. Sounds silly now, but it was real to me, and I know it's real to many others.

What got me off the schneid (to use Chris Berman's now famous expression) was two things:

1. Knowledge

The more you learn about any subject, from exercise to investing, the less intimidating it becomes. More knowledge also adds mental ammunition to take the jump and stay on course, all the way to retirement. Also, the more knowledge you have, the more assurance you will feel that you're not making obvious mistakes. There are many resources, free and paid, to learn more about investing.

2. Simply setting aside money

As we saw recently in the interviews with people like Thomas Frank who successfully turned their financial lives around, success started with scaling back our lifestyles and making a simple, yet firm, decision to set aside money for the future. It's like the old Nike ad: JUST DO IT ™.

Making the decision to cut back is the hard part. Once you have done that, you get to the choice of where to put that money you set aside each month.

Play to Your Strengths

Again, drawing from my observations with hundreds of people I have encountered, I believe there is no one-size-fits-all answer to investing, whether it be for retirement or any other future purpose. For instance, I have two neighbors, Jim and Mario. Jim worked an ordinary job his whole career, never making much more than an average income, and yet today he's a millionaire. His strategy: investing in individual stocks with a conventional investing account (i.e., not through an IRA or 401(k) plan).

Mario, on the other hand, has an auto repair shop, and has for many years. He immigrated legally from Mexico and knows nothing about index funds or anything traded anywhere. His wife works for a realtor, and so they began buying rental homes a decade or two ago. He's a hands-on type of guy, used to fixing stuff and dealing with customers, so to him and his wife rental property was (and still is) a no-brainer investment. In every recession, they picked up a house on the cheap, and all their houses are cash flow positive today. They are saving now for the next recession, when they hope to pick up another bargain. Mario is still much younger than Jim, but it doesn't take a rocket scientist to see that he will probably be in the same position as Jim when he reaches retirement.

The point is: Figure out who you are and what you're comfortable with, and go with that. Jim is a bit of an Eeyore; and if he started with rental properties, it wouldn't have taken him long to just say, “Oh, just forget it!” So, don't listen to what others say you should invest in: Consider all the options and pick one or two investments that resonate with you.

Keep it Simple at First

But whatever your investment interest is, start out with something simple. The two simplest options are:

  1. Sign up for a 401(k) or similar plan at work, or a low-cost (or free) IRA account, into which you put an amount you're comfortable with every pay period. Automate that transaction, so it gets taken right out of your paycheck and you never see it.
  2. If you don't have a job with regular pay, open a savings account and decide what you're going to put in there … and do it. Automate it if possible.

That is simple and easy.

Once you've stayed with the savings account or retirement plan for a year or so, you'll discover that, while you weren't looking, that switch in your mindset shifted from trying to justify not investing to trying to justify investing.

You are on your way to a secure financial future!

The important thing is not what you start with, but that you get started. That is how you can benefit from the extraordinary power of compound interest. The sooner you start, the more options you will have in your future when retirement beckons.

Future Flexibility

One of the beauties of investing, too, is that you are never locked in. If, let's say, the returns on savings accounts stop requiring a magnifying glass to detect, you can change your allocations to include more savings, CDs, bonds or bond funds. Or, if your closest friends decide they want to buy a rental property but they don't have the down payment, you can always switch part of your investment by liquidating one and putting the proceeds into another. (Please note, I'm not advising you do stuff like that. All I'm doing is highlighting that when you invest, you're never locked in. You can always change as you go along and learn more.)

But you'll never have that flexibility if you have nothing invested.

There is no way you will enjoy retirement or financial freedom later in your life if you don't invest. If you have been holding yourself back by not knowing where to start, be held back no more.

Have you had to overcome the fear of investing? What made you finally decide to pull the trigger? What advice would you give to someone that is trying to overcome their fear?

More about...Investing, Retirement

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Jon
Jon
5 years ago

I agree with the idea that once we start with something, we instantly have a connection and don’t want to stop. For me, being successful with investing has come from understanding the basics of how the market works and taking a long term view. I don’t’ get scared when the market drops 100 or 200 points in a day or that many points a day for a week. I am looking at 10, 20, even 30 years into the future and the long term trend of the market is up. And in the slim chance that it drops to zero… Read more »

lmoot
lmoot
5 years ago

I’m glad you didn’t stick to the old PF mantra of investing in stocks, and offered other types of investing. I am a big fat Mario. I’ll admit that my aversion to non-retirement investing (I have a ROTH, 401k, and IRA), is almost all emotional. I don’t like the idea that is thrust down our throats that we must rely on corporations in order to have a dignified retirement. Although it’s fitting, and expected, since we’ve built a culture of consumerism that has convinced us that we can’t have a dignified living without the same corporations either. I won’t go… Read more »

Jason
Jason
5 years ago

Thanks for this article! My biggest fear is saving more and putting it in the right places. For instance:

“His strategy: investing in individual stocks with a conventional investing account (i.e., not through an IRA or 401(k) plan).”

What is a conventional investing account if not an IRA or 401k? A brokerage account? What should I look for in this “conventional investing account”?

Those are the questions that kind have me hung up.

mysticaltyger
mysticaltyger
5 years ago
Reply to  Jason

IRAs and 401ks are not actual investments. They are essentially TAX SHELTERS. Basically, you’re making a deal with the government that you’re going to designate a pot of your savings toward your retirement and not touch that pot of money until you’re old. Since the government is struggling to pay its own bills, it doesn’t want you depending on it in old age any more than necessary. So it gives you a tax break for contributing to these tax sheltered accounts that go by different names (457, deferred compensation, 403b, IRA, Roth IRA). The rules for each aren’t exactly the… Read more »

mysticaltyger
mysticaltyger
5 years ago
Reply to  Jason

Oh, and by the way, Jason, pretty much everything said in this article is spot on. Getting started is at least half the battle. Don’t worry about doing everything perfectly. Just get started.

Dollar Bits
Dollar Bits
5 years ago

Excellent article. I completely agree that it’s hard for people to get started and that keeping it simple is a great way to start. Invest as much as you can in a simple portfolio comprised of index funds, and most importantly START INVESTING AS EARLY AS YOU CAN to allow for years of compounding to take affect.

Jeremy
Jeremy
5 years ago

What has worked for me for many years is something you touch on a few times; the power of automation. Having money hit my investment accounts either through my employer’s plans or my personal plans has been instrumental. The money never ever really touches my bank accounts waiting to be spent on living expenses for the family. Instead it goes right to the investment accounts I have set up without any additional thought by me. When you are like me with kids and a mortgage it is very easy to say, “I’ll start investing next month, this month I need… Read more »

freebird
freebird
5 years ago

Another factor that breeds inaction is the bewildering complexity of investment choices that are out there. Yesterday I went to Target to look for a vacuum cleaner and after two hours of comparing and contrasting, I simply couldn’t decide because of the flood of data. It’s no easier when you’re faced with thousands of mutual funds, ETFs, individual company shares, etc. Of course you can hire an advisor to navigate the maze, but there’s the well-worn stories of people who were taken advantage of by onerous markups and fees. Few people go to see a doctor or lawyer unless they… Read more »

William
William
5 years ago
Reply to  freebird

Great point! Thanks for adding it to the conversation.

Sanjeev Shrestha
Sanjeev Shrestha
5 years ago

Good Article William ! Your article relates to Investing and they are great articles. You got started in investing late in your life, but I like your idea that people get started investing ASAP. One of the problems I saw in investing when I got started was huge amount of information. It is not lack of information. It’s Too much information. Information Overload ! What to pick, when to pick, who to listen, which books to buy, and how to do it? It’s very easy to get overwhelmed. For me, I started with simple and easy, Target Funds in Vanguard… Read more »

Sandi_K
Sandi_K
5 years ago

I’ve been saving for retirement since I was in my mid-20’s. But many of my friends and co-workers have not, and do not. So I started a lunchtime “brown bag” meeting at work. We meet every two months, and talk over options for investments, share articles, write emails to one another outlining how to create an account with Fidelity (which manages our retirement accounts), etc. It’s been great! So in addition to “just get started”, I’d also advocate – find a buddy to hold you accountable. In just 3 months, we’ve gotten more than half the staff in our unit… Read more »

mysticaltyger
mysticaltyger
5 years ago

I agree information overload is part of the problem. When people have too many choices, they freeze up and do nothing, which is horrible! So if you want to keep it simple, invest in a “balanced” or “target date” fund in your 401K or open up an account with Vanguard if you don’t have a workplace retirement plan and invest in one of Vanguard’s retirement funds or Vanguard Wellington, one of the better balanced funds out there. JUST DO IT!

Nepoxx
Nepoxx
5 years ago

I understand that the market will rise. I get it, I have a B.Sc., I get the maths. But past performances don’t mean anything about the future. The market may crash harder than it ever did. The population is getting older and we don’t have enough kids to compensate. We might not be able to produce more and more. A big war might start between Russia/US, China/US, whatever. You don’t know. You might invest all your savings in the market and lose everything. The chances are slim, but they do exist. I’m exagerating but I’m sure you understand my point.… Read more »

David
David
5 years ago
Reply to  Nepoxx

(Trying again where I mean to reply)

Any, all, or none of those things may happen but the future will come regardless of if you plan for it or not. Someday age catches up to us and we are either no longer able or want to work. I would rather have a plan and be prepared for this than ride the rollercoaster and face a future where I am guaranteed to face a lifestyle of diminishing means.

Regardless of what happens I am fairly certain that future me will be thankful that I tried my best to prepare.

Bryan@Just One More Year
[email protected] One More Year
5 years ago

I think you touched upon a huge reason why people have not invested yet: getting started. I know that some high schools are beginning to have classes that teach students how to create a budget and manage their finances. A great next step to this would be to show them how easy it is to setup an IRA or retirement account on their own or with employers. Give them sample statements that track the investments and teach them how to understand the numbers. It may just be a fear of failure or people afraid to admit they do not know… Read more »

David
David
5 years ago

Any, all, or none of those things may happen but the future will come regardless of if you plan for it or not. Someday age catches up to us and we are either no longer able or want to work. I would rather have a plan and be prepared for this than ride the rollercoaster and face a future where I am guaranteed to face a lifestyle of diminishing means.

Regardless of what happens I am fairly certain that future me will be thankful that I tried my best to prepare.

David
David
5 years ago
Reply to  David

Oddly enough this is not the particular post I clicked reply on….

Stella Chiu
Stella Chiu
5 years ago

Hi, william

Excellent post. I have been an investor all my life. I believe knowledge can help people to over come the fear. However,actual expereince is the best teacher for any field. The best tool to overcome fear is real action.
For beginner,one must set aside certain amount of money that he can afford to lost in order to gain the experience. That is no way to get around that.

As time go by, any investor can be successful with principle of dollar average investing and principle of never lost money in any investment.- Stella

Pira
Pira
5 years ago

It’s so important to start investing at a young age or else you could be missing out on some amazing returns, and there are tons of options for the risk averse like low-cost ETFs, mutual funds etc. I started a few years ago and never looked back.

Ali @ Anything You Want
Ali @ Anything You Want
5 years ago

I was terrified of investing at first. It seemed like I just didn’t know enough to be able to invest smartly. I realized that the real danger was not investing, in which case I was guaranteed to lose money. So I talked to lots of people, read books, and just dove in. Five years and an MBA later, I realize that there aren’t any secrets. Just invest in mutual or index funds with low fees and invest as early as possible. Simple as that!

Jerome
Jerome
5 years ago

I agree with all that you say but I think it somehow misses an important point. I know quite a few people who have started investing, lost a bit of money on those investments and than stopped investing, fully convinced that investing is nothing more than high-risk gambling where you are sure to loose money. And although we are a living example that it is possible to save enough money to live from without winning a lottery or getting a big inheritance or earning ridiculous amounts of money, I have never had any success with getting other people to start… Read more »

William
William
5 years ago

Yep, I know of which you speak. The good news is along the way there still are a few smart folks who get it… and then keep at it! 🙂

IamNoSpecial
IamNoSpecial
5 years ago

Yes, now knowing what to do is the biggest hurdle and there are ways to overcome it.
The biggest push for me was getting into mortgage.

BT
BT
5 years ago

My partner and I are very good savers and have a lot of cash sitting in savings accounts. I would love to run out and buy some index funds. However, my partner is more hesitant and would like to get a money manager. I have always thought money managers are a rip off and that we could do just as well on our own. I’m willing to consider using a money manager if I can find a decent argument for it, but I am also really struggling to get my partner to be open-minded about investing on our own. So… Read more »

Nepoxx
Nepoxx
5 years ago
Reply to  BT

“is there a good argument in favor of using money managers?” Yes. Financial advisers are very useful if you have a complex situation or know absolutely nothing about investing. Unfortunately, most of them are going to sell you “their” investments, depending on who they work for. Also, their fees are going to be much higher than if you did it yourself (of course). Be wary of who they work for, and how they make money (ask!) “how can I convince my partner to consider investing on our own?” The same way you convinced yourself to do it: research and education.… Read more »

Sandi_K
Sandi_K
5 years ago
Reply to  BT

My brother is a financial advisor, and like most, when starting out, he leaned on friends and family for client relationships. I agreed to let him manage my DH’s IRA, and I managed mine. We gave him 2 years, and my investments beat his chosen investments for my DH’s accounts both years. He then got promoted to deal with higher net-worth clients, and so my decision to consolidate our accounts under my management was not a problem. So maybe that’s a good option? Tell your partner that you will manage yours, and your partner can manage their own with an… Read more »

Kelli B
Kelli B
5 years ago

Good article. Investing is important to secure your financial future; however, I think a lot of younger individuals (new to the workforce) simple don’t invest because they don’t understand why the should or much about the process. I mean if you’ve ever read a 401K packet its enough to make you either fall asleep at your desk or wonder if it is written in a foreign language. There needs to be awareness raised about the importance and necessity of investing. Once that has been reinforced in one’s mind, it is time to start asking lots of questions. An employer that… Read more »

Patrick Dyer
Patrick Dyer
5 years ago

Dollar-cost averaging can help new investors ease over the psychological barrier. I also agree with Jerome’s point, losing money on investments is apart of the game as well. Can’t be discouraged.

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