If you, like many others, suffer from a fear of investing, in this article, we’re taking a look at the root cause of this phobia and how to get around it. Investing, whether it be in the stock market or another asset class, poses an excellent means of reaching your financial goals. As any successful investor will tell you, overcoming this fear might be the step between you and your dreams.
Identifying investophobia
Investophobia is a reasonable concern about making an investment or losing money when investing. If you have solely centered your financial plan around saving and not investing in anything whatsoever, you could be afflicted by investophobia.
Based on studies conducted, the main reasons people are scared to invest in the stock market and other assets range from not understanding the markets to having a lack of capital to having had previous bad (fraudulent) experiences.
These factors all play a prominent role in hindering opportunities to build wealth and benefit from the rewards of investing (and compound interest).
The four biggest investment fears
Based on a survey conducted by an investment firm, these were the leading reasons why people were afraid to get involved with investing.
Investing is too complicated (11%)
These respondents said that they would rather make use of savings accounts as this process was easier to understand and less risky.
Investing has a bad name but it doesn't have to be as daunting as it appears. The more educated you become, the better equipped you will feel, and the greater you can benefit from the rewards. Read articles and scour blogs, such as ours, that empower readers to understand their personal finances and how money works.
If you are investing in the stock market, take the time to understand how it works and look at its history to get a firm understanding of how the stock market works.
Rome wasn't built in a day, so don't feel like you need to become a pro-investor overnight. Start small and make use of companies that offer dummy investing accounts that let you test the markets without using real funds.
Look for one that allows you to invest in the stock market using practice money and treat the experience as if it was real capital and you were building a successful investment portfolio. This allows you to get comfortable investing while taking baby steps to grow your confidence.
Investing makes your money inaccessible (5%)
This group of participants fears investing because they believe they will lose access to their funds and would prefer to have them at hand's reach. This problem can be resolved depending on what kind of investment account you go use to build your investment portfolio.
Most of the time, shares and investment products can be liquidated within market times, however, any informed investor will know that the longer one leaves the funds in the investment, the the higher the returns.
Another key strategy to avoiding tucking into your investments is to create an emergency fund (3-6 months' worth of monthly expenses) to keep on hand should you need it. An emergency plan is the key to putting aside money for a rainy day so that you can stay ahead of life's curveballs.
This way, you don't need to tuck into your investment efforts just to confront life's challenges, and ensures that your investment targets remain on track.
Fear one might lose money (14%)
This group has an outright fear of losing money and, as a result, would rather not invest at all.
The irony is that the fear of losing money (and not investing) is actually costing you more in the long run. Keeping large sums of cash on hand or keeping them exclusively in a savings account will, unfortunately, subject your funds to market forces such as inflation, low-interest rates, and high monthly banking fees, all factors which can erode away at the value of your hard-earned money over time.
To conquer this concern, consider taking advantage of mutual funds. These are collective investment schemes (CIS) that pool the funds of similar investment objectives together. These funds are then invested in a diversified portfolio and managed by a professional.
The portfolio might include anything from securities to stocks, bonds, real estate, treasury bills and cryptocurrencies, and are at the discretion of the investor. Often, asset allocation goes hand in hand with risk tolerance, so be sure to have a thorough understanding of your prior to getting started.
The aim of investing in mutual funds is to spread the risk and maximize your returns at a relatively low cost. While any investments do carry a level of risk, when diversified and managed by professionals, risk can be kept at a bare minimum.
Every investment strategy is too expensive (30%)
Interestingly, the biggest concern among participants afraid of investing was that the process would be too costly, and they cannot afford it right now. While being aware of your financial situation is responsible and we advise building an emergency fund before engaging in investments, the process might be less costly than the average outsider imagines.
Many people assume you must have a massive amount of money to invest, whether it be tomorrow or in 10 years. But what if that 'large' sum never materializes? Then your time will be wasted waiting around.
Fortunately, investing is much more accessible than ever and not as expensive as one might think. People can easily find funds that require a small amount of capital or a minimum deposit each month, long term this can still grow and create wealth.
We at Tap are convinced everyone can partake in investment choices - after all, we're all investors. If you have the means to buy airtime and data subscriptions, then there's no reason why you shouldn't be investing. This is the first step to achieving financial stability in the future, consider investment programs that cater to your budget and goals.
3 things to look out for when deciding on an investment platform
To further assist with reducing any fears over investing, below we outline 3 non-negotiables you should ensure that your chosen investment platform can check off. If you’re unsure, ask, it’s your money after all.
Before you start investing we encourage you to assess your financial health and determine your risk tolerance so that you can build investment strategies appropriate to your needs. Once you've covered this step and overcome your investment fear, find yourself a well-suited platform to review your investment options.
- Does it support the investment instruments/stock market you’re after?
If you’re looking to invest in index funds, look for a platform that caters to this. If you’re looking for crypto investments, make sure that the platform supports the assets you’re after. On top of this, ensure that the platform has gone through a careful screening process, a wide range of assets/instruments isn’t necessarily beneficial if the platform hasn’t vetted them.
- Does it use optimal security?
If you’re managing your investments through an app does it have the maximum security measures in place to ensure that your funds are safe at all times? On top of this, does the platform have insurance policies in place should their security be compromised? The platform should also at a bare minimum incorporate bank-grade encryption and two-factor authentication.
- Is the platform regulated?
For peace of mind forgo investing on any platform that does not adhere to your local regulatory laws. The platform should be regulated to offer investment products to different classes of investors, this involves a rigorous process that ensures the upkeep of the regulatory laws and that the platform is always above the law and therefore your funds and investments are safe.
Invest in your future and avoid losing money
Don’t let the fear of investing hold you back from bettering your financial situation. Whether you’re on the path to paying off debt, a mortgage, or building generational wealth, investing can help you achieve those goals at a faster rate, particularly if you incorporate compound interest.
If you’re looking to start your investing journey, we’d recommend that you first create a budget so that you are on top of your monthly expenses. Next, assign any extra funds to pay off debt and/or build your emergency fund.
Use the time it takes to complete the first two steps to actively engage in learning about investing and deciding which instruments you wish to invest in. When you have completed the first two steps, choose a reliable platform and start your investment journey.
This article is for general information purposes only and is not intended to constitute legal or other professional advice or a recommendation of any kind whatsoever and should not be relied upon or treated as a substitute for specific advice relevant to particular circumstances. We make no warranties, representations or undertakings about any of the content of this article (including, without limitation, as to the quality, accuracy, completeness or fitness for any particular purpose of such content), or any content of any other material referred to or accessed by hyperlinks through this article. We make no representations, warranties or guarantees, whether express or implied, that the content on our site is accurate, complete or up-to-date.
