How to Get over the Fear of Investing

Investing is a four letter word to many people. The fear of investing stems from the many horror stories of stock market crashes and tales of wealthy people losing their fortunes on poor investment decisions. These trumped-up tales shouldn't scare you away, however. Learning how to invest is an important aspect of maturing your finances. In this article, I will outline the steps you must take in order to overcome your fear of investing.

Why should I care about investing?

Many of us choose to ignore our fear of investing by simply ignoring it. While it's possible to get by in life without interacting in the world of investments, learning how to invest is the key to financial independence. If you aren't investing, the only way you're earning money, really, is by having a job. Now, I'm not here to tell you a job can't take you many places—it can! A job helps you slowly pick away at student loan debt or a mortgage or other debt. If you dedicate your life to living frugally, you can even plan on eventually saving up enough money to do something interesting or fun.

As pretty much any investor will tell you, however, keeping all your money in savings accounts is tantamount to losing money, as the return on investment is paltry compared to putting some of your money into mutual funds or market index funds. Unless you find yourself with a really cushy job in a town with a low cost of living (and more power to you if you can swing that), learning to invest is the only reliable method of achieving financial independence and the freedom to pursue your life's interests.

Why does investing seem scary?

What some folks don't realize is that there are different levels to investing, and there are different types of investors. When most people think about investing, they probably have one of two visions about what an investor looks like. The first vision is probably like something out of The Wolf of Wall Street, as though Jordan Belfort's fast-paced career selling fraudulent penny stocks is what all stock trading looks like.

The other wrong idea people have about investing is thinking the stock market is reserved for only the very wealthy. It's true that the richest people in the world, like Warren Buffett, were able to amass much of their wealth by investing in the stock market. Wealth is not, however, a prerequisite to buy and sell stocks, or to participate in any other form of investing. When you're first starting out, you're probably not going to be buying a bunch of stock in Alphabet Inc. at $1,200 a share. The world of investing is so much larger than the big-name companies on NASDAQ.

While mutual funds and the stock market are the most prominently discussed investment routes, there are dozens of ways for an individual to enter the world of investing without having to deal with them. Savings accounts, for example, are technically a form of investing, albeit an extremely low-yield path. Savings accounts accrue interest on your money, but rarely higher than, say, .01-.02%. The trade off is that savings accounts are incredibly safe investments compared to investing in the stock market. Other safe investments include bonds (especially government bonds) and certificates of deposit (or "CDs"). Just like with savings accounts, however, these safe investments are safe because they don't give you a huge return on investment. These investments are really only good for people who absolutely need something super low-maintenance. The "set it and forget it" approach to investing is not something I recommend, especially in today's world when it is so easy to trade stocks while working a full-time job.

Stocks, bonds, real estate, equities, futures, and commodities are all other forms of investing with varying degrees of risk. As you learn more about the world of investing, you'll come to find that the most high yielding investment routes are typically the most volatile. Risky investments instill fear in a lot of people because of all the horror stories of investors who lost fortunes trying to beat the market. The fact of the matter, however, is that everything in life has risk. In some ways, a 9-5 job is no less risky than certain investments. Layoffs can happen at any time, or companies can go out of business, or personnel transfers can be made. The reason why people aren't afraid of having jobs, however, is because they understand how to do their jobs, they understand how the job market works, and they understand corporate culture. This relative familiarity—this knowledge—is what separates jobs from investing when it comes to our fears.

Knowledge is power.

I'm a firm believer that knowledge is power, and knowledge is the best way to assuage one's fear of investing. Just like how our knowledge and familiarity with our own jobs means we aren't afraid to go to work in the morning, gaining knowledge of the ins and outs of investing will mean we know longer have to allow the fear of losing money cripple our ability to invest.

Step one to tackling this ignorance and fear is to narrow down what kind of investing resonates most with you. Once again, I'll remind you that you are not Warren Buffet: You do not need to diversify your portfolio between hundreds of markets and options. Pick a single investment "arena" that interests you, like perhaps real estate or corporate bonds. Learn everything you can about that market and follow its rise and fall over time. You don't have to dive right into the deep end and invest half your salary into something! In fact, it's smart to be patient. Impatience is one of the easiest ways people lose money on their investments. Don't put your money into something until you're comfortably familiar with it as an outside observer. Even then, start with an amount of money you can handle losing, just in case. Once you're more intimately familiar with the inner machinations of whatever investment you're working, then you may decide to invest more.

The good news is that there are countless resources available to you, many of which allow you to teach yourself about the world of investing for free. Soak up as much of this knowledge as you can, and you'll soon find your fear of investing has melted away, allowing you to get started investing and on the path to achieving financial independence! If this boost of confidence needs supplementation though, try some of these tips for getting over your fear of investing.