With the U.S. in debt to levels never exceeded before, high unemployment rates, rising loan defaults, and politicians who can’t agree on how to deal with the financial crisis, many people are fearful of making any kind of investment.
It’s natural to be nervous about investments, especially those that could be risky, but a good investment strategy can help you get over your fears.
The question is: Are these fears substantiated—and how should investors deal with them?
Diversify your investment portfolio
Every good financial planner will tell you that one of the best ways to alleviate fear when it comes to investing is to diversify. The saying “don’t put all your eggs in one basket” is one to adhere to. While some of your investments, especially when you are younger, should be riskier, that doesn’t mean they all should be. When deciding how much risk to take, look at your current financial situation, your age, and what you hope to achieve.
Don’t try to time the stock market
Trying to time the stock market can make investing stressful, and the fear of timing it wrong may keep you out altogether. Instead, invest consistently into the stock market. For example, you could automatically have a certain amount deducted from your regular bank account on a weekly or monthly basis for investment purposes.
Additionally, don’t watch your investments every day. In order to make money, you really need to be in it for the long haul. Watching the market daily can create undue fear that may have you cashing in your investment too soon. This can cause missed financial opportunities.
Think long term
While the market does fluctuate from day to day, for most investors it is about what they can make on their investments over time. It is unrealistic to think that your invested money should make you a fortune in a short period of time. Relieve your fear by thinking about your investment portfolio as a long-term financial life strategy.
Always keep some money safe
While investing money is an important component in becoming financially secure for your future, you should always keep some money safe and on hand. Creating an emergency fund for the unexpected can help alleviate investment fears. Your emergency fund should have enough money to cover at least three to six months of your daily living expenses. Having an emergency fund can give you peace of mind and allow you to invest more freely.
Just get over the fear
Those who fear are the ones who miss out on some of life’s biggest opportunities. If your investments are driven by fear, more than likely other parts of your life are dictated by fear as well. Fear can cripple us and can cause us to miss out on life.
When you conquer your fear, you just may be amazed at what doors open, including ones that can offer you financial security in your future.
Jeff Rose is an Illinois Certified Financial Planner. He blogs at Good Financial Cents and Soldier of Finance. He loves Crossfit workouts, writes about Roth IRA rules and craves In-N-Out burger. You can follow his updates on Twitter.