One of the most important components of successful investing is overcoming your own fear. Fear is a powerful emotion that can drive our decisions at every turn. Some people are so fearful of losing money that they never even consider investing in stocks. We all know that person that is quick to tell you that they won’t gamble their hard-earned money away in the stock market. This type of mentality will prevent you from ever learning how to invest wisely and generate wealth for yourself over time.
History shows that the stock market tends to produce better returns over time than real estate, bonds, CDs, and many other types of investments. How are some people able to overcome their fear of investing in stocks while others sit on the sidelines forever? Below, we are going to walk you through a few rational ways of overcoming fear of investing in stocks.
Educate Yourself
Fear of the unknown is one of the biggest roadblocks towards investing success. The truth is that investing is a life-long process of learning and improving. That’s why if you want to overcome a fear of investing, you need to educate yourself and be open to learning new things. At a minimum, study the basics of the economy, the stock market, and how it functions. Familiarizing yourself with the fundamentals of the market and what makes it move up and down will help you be more comfortable with investing. Knowledge will give you the confidence you need to overcome fear and achieve investing success.
Only Invest What You Are Comfortable With
Another big factor that holds people back from investing is determining the correct amount of money to use. Beginners are often hesitant to invest because they aren’t sure of how much money they need to get started. The good news is that you can start off small and grow your money slowly over time. There are tons of different companies to choose from at all different price points. When you invest with an amount you are comfortable with, you can keep your emotions in check and avoid letting fear control your thought process.
Even seasoned stock market veterans can get this idea wrong and end up investing a lot more money than they are comfortable with. When you invest too much, you might find yourself up at night worrying since you used money that you can’t afford to lose. A good rule of thumb is to only invest money that you won’t need in the near future. You might even want to consider the money that you invest in stocks as untouchable. That way, you can let the investment grow over time without worrying about its performance on a day to day basis. It’s pretty simple – if you are stressed out or fearful for your investments, you are probably using too much of your net worth.
Diversify
If you are fearful of losing your money in the stock market, try reading up on the concept of diversification. When you are able to successfully diversify your capital, you will be less susceptible to risk and volatility in certain asset classes like equities. This will help you keep your fear in check. Don’t put all of your investing capital into one asset class, spread things out over several different things in order to reduce your exposure to certain factors. That way, if equities do take a downturn, you won’t take the full force of the downside.
Keep an Open Mind
Often times, preconceived notions about the stock market prevent new investors from ever actually giving it a chance. That’s why it’s very important to keep an open mind when it comes to investing. Unfortunately, there are plenty of people that associate the stock market with stress and fear. Others think it is impossible to succeed when going up against the big hedge funds and institutional investors. Beginners tend to focus on negatives when it comes to investing, but this is simply not the right mentality. Instead, keep an open mind and allow yourself to disassociate emotions with investing. This approach can pay off big in the long run.
If you are trying to overcome your fear of investing, keep the tips mentioned above in mind. The truth is that investing in stocks is one of the best ways to provide for your family in the long term, set yourself up for retirement, and take control of your personal financial situation. Every successful investor has to start somewhere.
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