Conquering the Investing Fear Factor

February 23, 20247 min read
Conquering the Investing Fear Factor
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Key Takeaways 

  • Many people find investing daunting, ultimately rendering them paralyzed by stock market anxiety. 
  • Fear of loss can be due to factors such as lack of knowledge, uncertainty, and media portrayal.
  • Fear of investing can be conquered through education, professional guidance, starting small, and assessing risk tolerance.

Many people find investing daunting, ultimately rendering them paralyzed by stock market anxiety. In fact, some 60% of U.S. residents experience such emotion when they consider investing in the market, according to MagnifyMoney.

As a result of that squeamishness, they potentially miss out on opportunities to potentially build wealth for their retirement or other financial goals.

However, through education and guidance, and by starting small and assessing risk tolerance, anyone can conquer their fear. They can navigate emotional swings and build a robust, diversified portfolio. Here is how.

Taming the Fear Factor

The potential for loss is a potent emotion. Humans evolved with an aversion to it. That instinct helped them survive against natural threats and determine what was safe to consume.

In more contemporary times, that impulse has extended to investing. Fear of loss can be due to factors such as lack of knowledge, uncertainty, and media portrayal.

In fact, most people are hesitant before participating in the stock market. Some never start. Even experienced investors experience the jitters, which can manifest as selling stocks prematurely or investing overly conservatively.

In investing, there will be downturns. However, investors and those mulling investing would do well to remember that the market has returned an average of about 8.5% annually, according to a Sept. 29 CNBC report. It is also advisable to maintain a long-term perspective on investments.

Strategies for Overcoming Fear

There are actions people can take to quell investing anxiety, including learning through reliable sources about financial basics and investment strategies. In addition to books, articles and online courses abound.

It also may be beneficial to consult a financial advisor who can provide personalized advice, and, in the process, help build confidence. Starting with small investments can also build confidence and allow the investor to gain experience gradually.

A key way to mitigate investing anxiety, and help guide investment decisions, is for individuals to understand their comfort level with risk. That can be tricky, since behavioral scientists contend that the fear of loss can affect a person’s approach to risk.

But there are questions people can ask themselves to help establish how much market volatility and loss they are willing to accept, such as:

Why are you investing? Determine personal investment goals, whether it is retirement, a home purchase, a child’s education costs, financial independence, or something else. This will help frame risk comfortability. Answering this question will also have the added benefit of helping with timeframe assessment and gaining an estimation of the amount of money needed.

When do you plan to use the money? Use the investment goals to establish a time horizon. In other words, figure out when the money invested will likely be used. Keep in mind that the longer the time horizon, the more risk can generally be assumed. The rationale is that if investments decline in value, there is time for them to bounce back. 

If the time horizon is shorter — perhaps the goal is a down payment for a house — there is less time to recover. Note that a hoped-for large return in a short period requires comfortability with risk. Why? Because if the market abruptly decreases during the timeframe, the goal may not be met in time.

Can you sustain short-term loss? Short-term fluctuations are normal. Note that with stocks and the like, shares may lose value. However, the loss is not realized until the investment is sold. If near-term funds are required, a sale at a loss may be necessary. Potential investors must determine whether a short-term loss fits their goals and time horizon. This is where portfolio diversification can help risk-averse investors: holdings composed of a mix of asset types can better sustain a decrease in a single type.

Do you have other savings? Risk tolerance notwithstanding, it is essential to have some non-invested savings in liquid accounts. Should there be an emergency such as an accident or job loss, funds can be easily accessed with no liquidation of investment accounts needed. Risk aversion is likely present if a major portion of savings are in cash due to skittishness about investing.

How often do you plan to monitor investments? Will investments be tracked daily, weekly, or just semi-regularly? Say the investment is in an index fund that tracks the S&P 500. Would that cause anxious scanning of the newspaper’s business section, for example? And if it does, is that due to nervousness or excitement about investment possibilities? If it is the former, a diversified portfolio can help. If it is the latter, there may be a willingness to take on more risk.

Building a Strong Foundation 

Investing requires construction of a powerful foundation. That begins with asset allocation — dividing assets among varying asset types to balance risk vs reward. Allocation is subjective; it is what works best for the investor. It also can change at different life stages.

We believe portfolio diversification, as mentioned, is an essential part of building a strong investment foundation. Diversifying investments across different asset classes — stocks, bonds, and alternatives — manages risk and aligns with the individual’s risk tolerance. In fact, portfolio diversification is key to long-term investing success.

As an example, say a beginning investor has a portfolio with an allocation of 50% stocks, 30% bonds, 10% cash, and 10% alternatives. Understand that stocks are a type of security that provides stockholders with a share of company ownership. 

Bonds, meanwhile, are issued by governments and corporations when they seek to raise funds. By purchasing a bond, the investor is giving the issuer a loan. In turn, the issuer agrees to repay the investor on a specific date. In the interim, usually twice annually, the investor receives interest payments.

Cash in a portfolio is there to fund immediate spending needs as well as short-term and near-term goals. The term is also more broadly used to describe hard currency as well as other liquid holdings such as bank accounts, money market funds, and Treasury bills.

Alternative assets are basically any asset types other than stocks, bonds, or cash. They are “alternatives” to the stock market. Long-term investors seeking refuge from rollicking public markets are increasingly turning to alternative assets.  

Due to their low correlation with the stock market, asset classes such as art, real estate, and venture capital are generally less volatile. They are in the private market, which has outperformed stocks in every downturn of at least the last 15 years.

Yieldstreet, one of the leading alternative investment platforms on which some $4 billion has been invested to date, offers the broadest selection of alternative asset classes available. Such opportunities are highly vetted, as only a small proportion ever make the platform.

Note, though, that portfolios require regular rebalancing over time to maintain the desired allocation. Also, while asset allocation and diversification are essential to possession of a solid portfolio foundation, they neither guarantee returns nor protect against losses.

Navigating the Emotional Rollercoaster

In human psychology, it is important to acknowledge the presence of “stock market emotions” such as fear and greed, which can cloud judgment. Thus, it is essential to make investment decisions that are based on research and strategy — not emotions.

It is beneficial to remain focused on long-term goals and avoid reacting impulsively to constant market fluctuations. Note that asset types that are not directly correlated with volatile public markets are typically better suited for investors seeking long-term positions. They can also lower risk, shield against inflation, and potentially improve returns.

Invest in Alternative Assets

Diversify your portfolio with private market investment offerings.

Alternative Investments and Portfolio Diversification

Alternative investments can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings. 

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk. 

In some cases, this risk can be greater than that of traditional investments.

This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.

However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. 

Moreover, investors can get started with a relatively small amount of capital. Yieldstreet has opportunities across a broad range of asset classes, offering a variety of yields and durations, with minimum investments as low as $10,000.

Learn more about the ways Yieldstreet can help diversify and grow portfolios.

In Summary 

Learning about financial basics and investment strategies, starting small, and establishing risk comfort levels can help build confidence, guide investment decisions, and gradually lead to investing experience. Consider consulting a financial advisor for personalized investment advice.

Remember, too, the importance of developing a diversified portfolio, and modern portfolio, as part of any investment approach.

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

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