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How to overcome the fear of investing (and 3 steps to get started)
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Key takeaways:
- The fear of investing often comes from concerns about losing money, feeling unprepared or making mistakes, but avoiding investing can also create inflation risk.
- Diversification, long-term thinking and regular contributions may help some investors manage short-term volatility, though they do not guarantee returns or prevent losses.
- Investing does not need to involve stock picking; ETFs and index funds can provide broader exposure, but suitability depends on goals, costs, timeframe and risk tolerance.
- The potential costs of avoiding investment include reduced purchasing power due to inflation and missed return opportunities, although investment returns remain uncertain.
- Practical next steps before investing include opening an appropriate account, funding it affordably and building a portfolio aligned with personal goals, liquidity needs and risk tolerance.
Many people know that investing can be a way to work towards long-term financial goals, but returns are not guaranteed and the value of investments can fall as well as raise, and you may get back less than you invest. Fear of losing money, feeling unprepared, or not knowing where to start can make the idea of investing overwhelming. These concerns are completely understandable, but avoiding investing comes with its own risks—particularly inflation, which erodes the value of money over time.
Some investing approaches can be relatively simple, and many platforms allow people to begin with smaller amounts, although minimums, fees and product availability vary. Building long-term investing habits could help you create structure, though outcomes are never certain.
In this guide, we’ll cover:
- Common fears about investing and how to overcome them
- The hidden cost of avoiding investments
- Three practical steps to consider before investing
Let’s dive in.
Overcoming common fears about investing
Fear of the unknown is powerful, and when it comes to investing, a few key concerns hold people back. Let’s tackle them one by one.
1. Fear of losing money
The most common concern among new investors is losing money. Unlike a savings account, where your balance stays stable, investments fluctuate in value, and market downturns can be intimidating.
While market declines do happen, some broad equity markets have historically recovered over long periods. However, recoveries can take time, results vary by market and period, and past performance is not a reliable indicator of future results.
Investors who sell during downturns may lock in losses and miss later recoveries, although recoveries are not guaranteed. Having a long-term perspective can help you put short-term volatility in context.
One way to manage risk is diversification—spreading your investments across multiple asset types, such as stocks, bonds, and ETFs. This approach can help spread risk, though diversification does not guarantee profits or prevent losses.
How investors could manage this concern: Accept that short-term market fluctuations are part of investing. Diversification may help spread risk, but it does not guarantee profits or prevent losses.
2. Fear that investing is too complicated
Many people avoid investing because they assume it requires advanced financial knowledge or constant monitoring of the stock market. However, investing doesn’t have to be complicated.
Index funds and exchange-traded funds (ETFs) can provide exposure to a basket of securities without requiring investors to select individual stocks. These funds may help spread risk across multiple companies, but they can still fall in value, and returns are not guaranteed.
For example, the MSCI World index provides exposure to a broad set of large and mid-cap companies across developed markets (constituents change over time), meaning you don’t have to pick individual winners.
How investors could manage this concern: Some investors begin by reviewing broad ETFs or index funds, as they offer diversified exposure without active stock selection. Suitability depends on goals, risk tolerance, costs and product features.
3. Fear of making mistakes
Another reason people hesitate to invest is the fear of picking the wrong stocks, buying at the wrong time, or losing money due to poor decisions. But even experienced investors don’t always make perfect choices.
Instead of trying to time the market, a commonly used approach is dollar-cost averaging—investing a fixed amount at regular intervals (e.g., EUR 100 per month). This approach spreads entry points across different market levels, although it does not guarantee a lower average cost or better returns.
How investors could manage this concern: Automated monthly contributions can support consistency and reduce reliance on a single entry point. However, the investment choice should still match your goals, timeframe and risk tolerance.
The potential cost of avoiding investing
While the fear of losing money is understandable, holding money only in cash can also carry risks, including inflation risk and missed return potential.
Imagine you have EUR 10,000 and keep it in a savings account earning 0.5% interest per year. After 10 years, your balance grows to just about EUR 10,511 (before tax).
Now, compare that with a purely illustrative investment example:
- If EUR 10,000 were invested in a portfolio returning 10% a year for 10 years, it would grow to about EUR 25,937 before fees, taxes and inflation. This is an illustration only. Actual returns can be higher or lower, including losses.
- Over 20 years, EUR 10,000 growing at 1.23% a year would reach about EUR 12,800 before tax. The same amount, growing at an illustrative 8.6% per year, would reach about EUR 52,000 before fees, taxes, and inflation.
That’s a difference of about EUR 39,200 in this simplified example. Inflation can also reduce the purchasing power of cash over time, although investing involves risk and is not suitable for all time horizons.
Know the risks before you invest
While investing can be a powerful tool for building long-term wealth, it’s important to recognise that no investment is risk-free. Markets can go up and down, and there’s always the possibility of losses. Historical performance doesn’t guarantee future results, so it’s crucial to invest with a well-defined strategy. Diversifying your portfolio and only investing money you won’t need in the near future may help reduce the impact of volatility. By staying informed and maintaining a long-term perspective, you’ll be more prepared to navigate market ups and downs.
3 steps to consider before investing
For people who decide investing fits their goals and risk tolerance, common first steps include:
Step 1: Open an investment account
Before you can invest, you need a place to hold your investments. This means opening an investment account, which typically falls into one of two categories:
1. Tax-Advantaged Accounts, where available.
- Individual Savings Accounts (ISAs) in the UK. Allow tax-free investment growth and withdrawals.
- 401(k)s and IRAs in the US. These can provide tax benefits, either tax-deferred or tax-free, depending on the account type and rules.
2. Standard Brokerage Accounts
If tax-advantaged options are unavailable or already used, a standard brokerage account may be another option. These accounts allow you to invest in a wide range of assets, including stocks, bonds, exchange-traded funds (ETFs), and mutual funds. However, unlike tax-advantaged accounts, you may have to pay capital gains tax on profits depending on where you live.
How to open an investment account
Opening an account can often be done online, although identity checks, approval times and minimum deposits vary by provider and country. Many platforms have low or no account minimums, meaning you can start investing with just a small amount of money.
When choosing a brokerage, consider:
- Fees. Compare trading fees, platform fees, spreads and other costs.
- Investment options. Ensure the platform offers stocks, ETFs, and bonds.
- Ease of use. Some brokers provide beginner-friendly tools and educational resources.
A practical next step is to start when you’re financially ready, after considering your goals, time horizon and risk tolerance.
Step 2: Fund your account
Once your account is open, the next step is adding money to it. Many new investors open an account but hesitate to invest, leaving it empty for weeks or months.
Why automation may help:
- It can reduce the need to make a new decision each month.
- It may support regular investing habits if the amount remains affordable.
- It can support dollar-cost averaging by spreading entry points over time, although this does not guarantee better returns.
A recurring transfer, starting with small regular amounts where appropriate, may support consistent investing. Minimums vary by provider and country.
Step 3: Build your portfolio
With your account funded, the next step is to choose investments that match your goals, time horizon, and risk tolerance. However, investing isn’t just about randomly picking stocks or following trends. A well-structured portfolio requires careful planning and diversification.
The importance of diversification
Diversification means spreading your investments across different asset types to reduce reliance on any single holding or market segment. Instead of putting all your money into a single stock, a diversified portfolio might include:
- Stocks. Shares in individual companies, which may offer higher return potential but also carry higher company-specific risk.
- Bonds. These can often provide income and may help reduce volatility, but bond prices and returns can vary (for example, when interest rates change or credit risk rises).
- Exchange-traded funds (ETFs) and index funds. These funds can hold multiple stocks and bonds in a single product, making diversified exposure more accessible.
Broad-market index funds, such as S&P 500 ETFs, are one option some investors review for diversified equity exposure. However, they can still fall in value, and past performance is not a reliable indicator of future results.
Final thoughts: Start when you’re financially ready
Starting to invest does not need to be overly complicated, but it should begin with clear goals, an appropriate safety buffer and an understanding of risk. Opening an account, funding it and building a diversified portfolio are practical steps only if they fit your personal circumstances.
Starting earlier can give your investments more time to compound, but this does not guarantee positive returns. The amount invested should reflect affordability, time horizon and risk tolerance.
Overall, investing could potentially support your long-term financial planning, but it should be balanced with liquidity needs, risk tolerance and the possibility of loss.