Yahoo Finance Investing: 3 ways I overcame my fear of the share market
"I’ve helped countless women overcome their fear of investing."
Like many, I too once had a deeply rooted fear of investing. The mantra I had heard growing up was: “Investing in shares is like gambling.”
Coupled with the horror stories of people who "lost everything" in shares, this narrative instilled a deep fear of investing in me. By the time I reached university, I had already completely written off share market investing. I didn’t think it was an option given how "risky" I’d been told it was.
And I know I’m not alone. By now, I’ve talked to hundreds of people about their finances and, through my online education program, I’ve helped many of them start their investing journeys with confidence.
I’ve seen first-hand how common and widespread the fear of investing is. So, here I’ve shared three things that have helped me and many of my students overcome the fear of investing.
1. Understand that you are ‘losing money’ anyway
The fear of investing is largely driven by the fear of losing money. But here’s the part so many people don’t realise: you are losing money no matter what.
See, there’s this thing called ‘inflation’. I’m sure by now, with the endless news stories about our cost-of-living crisis, you’ve heard of it. It refers to the general increase in prices over time. Once upon a time, you could buy bread or milk for 50 cents. Now, it’s a few dollars.
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What this means is the value of your money declines over time. You can buy fewer things with $100, than you could 20 or 50 years ago. That same $100 isn’t worth as much as it once was.
All the recent articles about inflation might have you thinking that this is a recent problem. But it’s not. Inflation isn’t new, it’s just a fact of life and it’s baked into the economy.
Now, you might be thinking: “But I earn interest on my savings, and interest rates are up.” But currently, the rate of inflation is still higher than the average savings rate. Plus, any interest earnings are subject to tax as well, so what you’re earning is actually less than you think.
The only way to get around this is by putting your money in assets that grow faster than the rate of inflation. In a way, when it comes to money, you have to run just to keep still.
So, if you’re really scared of losing money, you should also be scared of the fact that you are already losing money (to inflation) by default.
2. Realise you have more control over the ‘risk’ than you think
When people are scared to invest, they often assume the act of investing, or the investment product itself, is what makes investing risky. Now, that’s not totally untrue. But what most people don’t realise is that the biggest risk factor is not the investment itself, but the investor. Yes, you, the person who is doing the investing.
Think about it. Who decides what to invest in? Who gets scared when the market drops and pulls all their money out of investments? Who chases investment fads hoping for quick riches? The investor.
Many of the big mistakes in investing, the things that lose people a lot of money, are really about the investor’s decision-making, mindset and behaviours. Now, this is actually good news, because that’s something you can improve. It means you have the power to make better-quality investment decisions. There are things you can actively do to reduce the risk you are exposed to.
The more you work on your skills and mindset as an investor, the better you will become at investing and, naturally, you will make better-quality (and less risky) investment decisions.
3. Accept that risk is unavoidable
Here’s what so many people do not understand about risk: risk is in everything, everywhere, all the time. There is literally no such thing as a ‘risk-free’ option. Sure, some options may have more or higher or different risks than other options. But there is no way to completely avoid risk. You’re just choosing a different risk.
This means that not investing is risky. There’s the significant risk that you won’t grow enough wealth to ever comfortably afford retirement or other long-term goals.
This isn’t a small risk.
Recent research by Money.com.au found more than 50 per cent of Australians would not have sufficient means to self-fund their retirement, with nearly one-third expecting to carry debt into retirement.
So, when you avoid one risk, what you’re really doing is choosing another.
By avoiding investing, you are choosing the risk of not having enough wealth to meet long-term goals or retire comfortably. By choosing the perceived safety of keeping your money in savings, you are choosing the guaranteed risk of losing money to inflation.
Remember that being scared of the unknown and unfamiliar is human nature. You were probably once scared of riding a bike, jumping in a pool, or driving a car. But once you learned the ropes, you gave it a shot, and you got some practice under your belt, you realised that, not only was it not going to kill you, it was actually kind of fun.
Paridhi Jain is the founder of SkilledSmart, a financial education platform helping adults learn to save, manage and invest their money. For more money tips, you can grab a free e-book on "5 Money Mistakes Costing You Thousands" via their website, and learn more about their course, Mastering Money.
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