Conquer Your Fear of Investing
Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
Are you looking for a better way to invest for your future, but unsure of which product to choose? Does a Stocks & Shares ISA or Personal Pension seem enticing, but you’re just too worried about investing? Don’t worry as you’re not alone. Many people have a fear of investing when they’ve never done it before. By reading this article, you’ll learn that rather than fearing investing, you could actually benefit from embracing it.
Why Are You Afraid of Investing?
We all like the idea of having more money, so why aren’t you investing your money already? Well, that could be for a number of reasons. One major reason is our fear and lack of knowledge on the subject. But where does this fear come from? For many, especially millennials, it could be down to the fact that after years of being told that we can be whatever we want when we grow up, we came out of our expensive education and straight into a great recession.
There’s little wonder why we try and cling to our cash and keep it where we can see it.
From our research, however, we have found that there are actually five main reasons people shy away from investing, though each of these can weigh differently for each person.
- Be scared of losing money
- Be unaware of the best time to invest
- Be too nervous about the volatility of the market
- Lack the time or knowledge to manage a portfolio
- Feel you need to have immediate access to your money
Each of these fears lead to one thing – the fear of failure. However, these fears can easily be conquered, you just need to know how.
How to Overcome Your Fear
In some cases, to get over a fear you should just take the bull by the horns and face it head on. However, with investing, it’s worthwhile doing a little research into the subject, or the fears of investing that you had may return.
Here are our top three recommendations:
- Take a Short Finance Course
We understand that you may be too busy to do a full finance course, however thanks to our partnership with the Open University Business School, we’ve established the True Potential Centre for the Public Understanding of Finance. This has helped us build a series of three personal finance courses designed to help you expand your financial knowledge, learn more about investing and boost your confidence when it comes to money matters.
The beauty about these courses is that they are short and can be done in your own time. They are also written in a way that you can understand, without all of the finance jargon that leads to confusion over finance in the first place.
The fear of your investment not performing is another major reason why people don’t invest. The market can be volatile, with ups and downs, so in order for you to make a return on your investment, you might want to invest in a fund that works with volatility, not against it. This can be done through diversification.
In a nut shell, diversification in an investment portfolio, such as our True Potential Portfolios, is a balance of funds that are divided across a number of industries and classes. Through this spreading of funds, it means that all of your eggs aren’t in one basket, so you’re not relying on one industry or type of investment doing well.
For example, not only do we diversify our funds through industries and asset classes, we also spread our assets across the globe to level out any dips in the market. For example, if the UK market dropped dramatically, but the US market rose, then your investment would not make as great a loss as it would if you hadn’t had any shares in the US.
Several providers offer what is known as ‘multi-asset diversification’ which spreads their investment as above. However, our own True Potential Portfolios go one step further and use advanced diversification to also spread an investment between different investment managers. By diversifying by investment style, we can further reduce risk whilst maximising returns.Explore Our Portfolios
3. Invest For More than Five Years
If you’re hoping to get a higher return on your investment, then research has shown that the best route to go down could be investing in a Stocks & Shares ISA. This is because this type of ISA allows you to invest in assets such as equites (shares), which have a higher return than cash over the long term. According to Barclays’ research in their Equity Gilt Study 2016, the probability of equities outperforming cash for a period of 10 years is 91%.
It’s important to note that returns are not guaranteed and can go down as well as up. As markets fluctuate in this way, it’s generally advised to invest for a minimum of five years as well as choose a level of risk that you’re comfortable with.Open a Stocks & Shares ISA
Investing is inevitably going to be a scary prospect, especially for the first time investor. However, research shows that this is potentially the best way to garner a high return. Do take note though, that it’s always worth taking a bit of time familiarising yourself with the basics and doing some research for yourself so that you feel comfortable with the investment choices that you make.