How To Get Over Your Fear Of Investing

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When it comes to investing, millennials are a cautious group. In fact, nearly half think it’s too risky to invest, according to the BlackRock Global Investor Pulse Survey. Rather than buying stocks and bonds, 70 percent of adults ages 25 to 36 are clinging to cash assets.

Millennials don’t trust the markets because there’s still a hangover from the financial crisis of 2008-09, said Chad Smith, a certified financial planner with Financial Symmetry in Raleigh, N.C. “Some have called it Armageddon hypochondria,” he said, meaning that they’re afraid to invest because there will be a repeat of the recession and market crash.

But millennials aren’t the only ones shying away from stocks. Only 22 percent of Americans think stocks are the best long-term investment, according to a 2016 Gallup poll. If you’re trying to save for a comfortable retirement, though, avoiding stocks isn’t the best strategy. You need to get over your fear of investing. Here’s how:

RECOGNIZE THE RISK OF NOT INVESTING
Investing in stocks might seem risky, but investing all of your money into seemingly safe investments such as money market accounts, certificates of deposit or even a basic savings account can put you at risk of not having enough for a comfortable retirement. That’s because the return on these investments isn’t high enough to keep up with inflation.

The current inflation rate is 1.1 percent, but it has been closer to 3 percent historically, said Nick Vail, co-founder and financial advisor with Integrity Wealth Advisors in Indianapolis. The best CD rates are barely higher than the inflation rate, and savings rates are about 1 percent. “If you are putting the majority of your money in these types of accounts, you aren’t doing yourself any favors,” Vail said. “Your purchasing power in 15 years won’t be much better off, if any better, than it is today.”

You need to earn at least 3 percent on your investments to keep up with inflation, said Roger Wohlner, a financial planner and founder of The Chicago Financial Planner. “Stocks represent a viable way to invest and beat inflation,” he said. “Investors need to understand this and take appropriate risks.”

“If you don’t invest in the market and position yourself to get better long-term performance, you really aren’t investing at all,” Vail added.

DON’T LET RECENT EVENTS SCARE YOU
The most recent bear market from 2007 to 2009 when both the Dow Jones Industrial Average and Standard & Poor’s 500-stock index fell more than 50 percent might still be making plenty of would-be investors wary.

“Whenever you look at stock market returns, there is a tendency to look at the most recent events or time frames,” said Charles C. Scott, a financial advisor in Scottsdale, Ariz., and founder of Pelleton Capital Management. “So if younger potential investors are looking at what’s happened in the last 10 or 15 years, which is a relatively short time in reference to the stock markets, there isn’t much reason to be impressed.” But, over a long time frame, stocks outperform bonds and bonds outperform cash, he added.

Of course, if you’re investing for the short term, you should be wary of losses. “If it’s money you need in a couple of years, by all means, the fear is warranted,” said Joshua Wilson, chief investment officer at WorthPointe Financial. But you shouldn’t let a recent market downturn scare you away from investing for the long term. “The pain of not investing in the stock market will be much greater in the long run because of missed opportunity than the pain of stock market fluctuations in the near term,” Wilson said.

KNOW THAT TIME IS ON YOUR SIDE
Not only is it important to consider how stocks perform over the long term, but also you should consider the benefit of investing sooner rather than later. “Something you can never, ever get back is time,” said Chad Nehring, a certified financial planner with Conceptual Financial Advisors in Appleton, Wis. “Simply put, the longer you stay invested, generally the larger the investment will grow.”

For example, if you invested $380 a month in a retirement savings account and earned 7 percent annually, you could save $1 million by age 65. If you waited until 35, you’d have to invest $819 a month with a 7 percent return to have $1 million by retirement. So if you’re letting fear keep you from investing, consider what you’re losing by staying out of the market and how much harder you’ll have to work to have enough for retirement.

“The adage here is ‘time in the market is better than trying to time the market,'” Nehring said. “Start small, be consistent and focus on the long term, but get started investing.”

TUNE OUT MARKET NOISE
It’s easy to be afraid of investing in stocks if you frequently tune into market news. “I work with millennial clients every day who express this fear for the markets, and I attribute some of that fear to the information overload we receive,” said Michael Cirelli, a financial adviser at SAI Financial Services in Warrenville, Ill.

He said that whenever clients say that they heard on the news that the markets are due for a large correction in the next few months, he asks whether they plan on retiring in the next few months. “While this may be somewhat of a rhetorical question, it usually drives home my point that what they hear day to day … is just market noise,” he said. “These networks are dedicated to financial news, and they need something to talk about every single day.”

Remember that if you’re investing for retirement, you’re in it for the long term. So don’t let what you hear about how the market is doing today scare you away from investing for your future, Cirelli said. And you can avoid some of the effects of market fluctuations by investing in a variety of stocks or mutual funds.

“Having a diversified portfolio balances risk among lower and higher risk investments, giving you better odds of achieving higher long-term returns,” Smith said. “While it cannot avoid short-term losses completely, it will reduce concentration risk of having one or two stock holdings blow up your portfolio.”

LET THE PROS HELP YOU
If you’re afraid to invest because you fear picking the wrong investments, you could turn to a professional for help. Smith said that he had met with a 30-something who had let cash in his bank account build to more than $300,000 because he had lacked the confidence to pick the right investments. He turned to Smith for help because, as Smith said, “his fear had paralyzed his decision making and he finally realized he was never going to do it on his own.”

You can find a financial planner in your area at NAPFA.org, the website of the National Association of Personal Financial Advisors. You also can find an adviser through Guidevine.com, or check with the benefits department at work to see if your retirement plan provider offers investing advice services.

If you don’t want to hire an advisor, consider investing in a target-date fund. “If you choose a target-date fund, professional managers will make the decisions for you based on what year you feel you might retire,” Nehring said. These funds automatically adjust your allocation of stocks and bonds as you approach retirement to lower your risk level.

SET IT AND FORGET IT
If you already are investing but are easily rattled by market downturns, your fear of losses might be prompting you to sell your investments. “The biggest problem with investors with long time horizons is that they constantly monitor their investments,” said Robert R. Johnson, president and CEO of The American College of Financial Services. “When markets are under pressure, they often succumb to their psychology and sell stocks and move into more conservative assets.”

But this is exactly what you shouldn’t do. “Studies have shown that investors who less actively monitor and trade in their retirement accounts perform better than those who do,” Johnson said. “The best strategy for young people is to ‘set it and forget it.'” In other words, they should make regular contributions to a low-cost index fund that tracks a market index such as the S&P 500 or target-date fund in a retirement account and stay the course.

Don’t set and forget entirely, though. Increase contributions as your income rises to ensure that saving 10 percent to 15 percent of your wages annually, as experts recommend.