Overcoming the Fear of Investing: How to Get Started Despite the Risks

Investments, like real estate or stocks, can be a powerful way to build wealth and achieve your financial goals. You know this, yet you find yourself being hesitant to get started? I get it. Any new venture is frightening until you learn the ropes. Fear of investing can be particularly hard to overcome because there is real money at stake. Money you have worked hard for.

You may have heard a horror story from a colleague that lost everything in a market crash. Your parents may keep telling you to leave your money in a savings account (better safe than sorry…). Everyone has a different opinion, so you end up feeling fearful about investing.

But: Not investing can be just as risky, maybe even more so, than investing. You might be missing out on valuable opportunities for your long-term financial security. It is essential to overcome your fear of investing, so you can get started with the fun stuff: Wealth creation. Trust me: With every article read, video watched, and step taken, you will slowly start to feel more comfortable.

In this article, I will not only share my knowledge on investing and risks, but I will also give you two proven strategies needed to manage risks and build confidence as you begin your investing journey.

Table of contents

• Understanding the facts around investment risks
• Reduce the risk: Diversify your portfolio
• The longer you are invested, the lower the risk of investing
• Miss the worst days, miss the best days
• Common questions around investing

Understanding the facts around investment risks

Any new venture that is started without prior knowledge can be risky. Going on top of a mountain to ski when you have never skied in your life: Risky. Getting onto a motorcycle when you never rode a bike before: Risky. Investing in the stock market without doing your homework first: Risky! But unlike with sports, it’s essential that you master this skill. The key is to do your homework first.

The more you know about investing and the risks involved, the more you will feel your confidence rising. Your fears dissipate because you understand what you are doing. The saying holds true: Knowledge is power.

There are two main strategies that will help you minimize the risks of investing: Diversification and long-term orientation.

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Reduce the risk: Diversify your portfolio

You know the saying: “Don’t put everything on one card!”. I’m pretty sure it has a financial background (I would have to look it up), because that is exactly what you want to adhere to when starting your investment journey. To minimize risks, you will want to build a diversified portfolio. What does that mean? You don’t put all your eggs in one basket. Instead of only buying Google stocks, you should spread your budget across stocks, bonds and other investment classes like gold or real estate. That will significantly lower the risk of your investments!

Let me give you an example:

Anna has CHF 8’500.- in her bank account that she would like to invest. She has heard on the news that LVMH has had a good quarter and the business performance looks promising in the future. She takes that as enough reason to go and buy CHF 8’500.- worth of LVMH stock. Herentire portfolio is now dependent on one company and its performance in the future. 

Bianca has CHF 8’500.- in her bank account and attended a training with me last year. She learned about the importance of diversification and has chosen to split her CHF 8’500.- into 3 different ETFs. ETFs (exchange-traded funds) are indices that mirror the performance of many different companies. So, by choosing ETFs, Binacais investing in thousands of different companies. If a company in her portfolio defaults, she will probably not even notice it. The drop in performance will be very small compared to the other companies’ performances in her portfolio. Also, with this strategy, she is independent of a specific market as the ETFs include companies from all over the world. 

You don’t need to go crazy for this strategy to work. If you have a smaller budget, pick an ETF like the MSCI World and you will automatically invest in more than 1’500 international companies. You are not putting all your eggs in one basket and can relax knowing that a company default or a national crisis in one country won’t wipe away all of your investment. 

The longer you are invested, the lower the risk of investing

The second concept I want to share with you that will lower your risk of investing is: The risk of investing minimizes over time. Stay with me while we dive into some numbers.

On average, the S&P500 (US stock index) gained 11.82% per year in the period of 1928 - 2021. This means that investing 100$ back in 1928 would have grown to 761’710$ by 2021 (provided all dividends were re-invested). You read that right: It grew by more than 760.000$! 

It often doesn’t really matter what stock or ETF you invest in if you stick with it! Quickly selling when a crisis hits or buying when everyone is buying will cost you in the long run. You are trying to beat the market. Remember this: Time in the market beats timing the market. It is much more important to stick with an investment than to try and find the perfect time to invest.
And isn’t that great? Once you created your investment strategy and placed your investments, you don’t have to do anything anymore. Keep an eye on it from time to time and just let it be.

Find all of this and much, much more in my FREE "4 Rules of Investing" guide - download now!

Miss the worst days, miss the best days

I understand that there are moments when it is difficult to keep your cool and remember the long-term benefits of your investments. In fact, many investors tend to sell their investments when big negative movements occur in an effort to avoid more losses. When the markets recover, those investors get back into it, because it feels “safe” again.

What you don’t know: This behavior is diminishing your returns over time as you lock in a loss and then miss large parts of the uptrend, before you reinvest in the markets. You end up missing the best performing days of the market and thus get stuck with the average and worst performing days. 

Look at the following chart: Let’s say you invested 1$ into the S&P 500 back in 1990. The red line is the return on investment for a person that got out of the market when the S&P 500 dropped and re-entered the stock market when the performance recovered. This person tried to avoid the worst days and ended up missing the best ones. The investment grew to around 4$ over time. In contrast, the black line shows an investor that didn’t interfere at all. The investment grew to around 16$, because they stuck through the worst and all the best performing days.

Source: Michael Batnick, The Irrelevant Investor

Common questions around investing

Why does the stock market go up in the long run?

The stock market mirrors the growth and wellbeing of the economy over time. As a long-term investor you can participate in this growth by providing money to corporations for innovation, investment, and expansion. Since 1928, US stock market earnings have risen by 6% annually and dividends increased by 5% per year as companies grew, become more profitable and created more value for their shareholders.

Can I lose all money from investing?

I’ll be blunt about this one: Yes, you can lose all your money from investing. Any investment comes with risks. No pain, no gain. But you can significantly lower your risk of losing all your money by learning about financial markets and investments before you get started. You have read until here, so you are on the right track 😉 Also it’s hard to lose all your money, if you invest it into ETFs with 1’500 different companies in them. It’s highly unlikely that 1’500 companies will go bust at the same time. But anyone that will tell you anything to do with investing in 100% certainties is straight out lying or trying to sell you something - definitely not trustworthy.