7 Ways to Slay Your Fear of the Stock Market

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Determined businesswoman or investor
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“No way, son. I worked hard for that money. I’m not about to gamble it away in the stock market.”

That was my dad, a child of the Great Depression and someone who, understandably, was reluctant to do anything with his money that didn’t involve either an insured CD or a T-bill backed by Uncle Sam.

Sound familiar? Maybe you know someone like him. Maybe it’s even you.

Humorist Will Rogers famously said, “I am more concerned with the return of my money than the return on my money.” Good logic, especially as one ages and becomes unable to rebuild a nest egg. But for anyone still working, sticking your neck out — even by a little — can make the difference between living large and barely scraping by when those golden years roll around.

Invest $400 a month for 40 years and earn 2% annually, and you’ll end up with around $300,000. Jack that rate of return to 10%, and you’ll have more than $2 million.

Think those extra dollars will make a difference in how, when and where you retire?

Of course, the only possible way to earn 10% on your savings is to take some risk by investing in things that might not work out.

While these types of earnings comparisons may be compelling, they’re probably old news to those unwilling to consider investing in real estate, stocks or other risk assets. So here’s another approach: a list of rules designed to help anyone minimize the fear of doing just about anything.

From investing in stocks to skydiving to asking someone out on a date, fear is not your friend. Here are some universal principles that will help you keep it to a minimum.

1. Understand what you’re doing

Operations research analyst
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If you’re going to invest in stocks, invest your time before investing a dime. Talk to people you know who have more experience. Learn what makes markets, and stocks, move up and down. Studying history will help you understand and predict the future.

So will understanding the rules of the game. And one rule of this game is that stocks will go down as well as up.

There’s an inverse relationship between knowledge and fear. The more you have of the former, the less you’ll have of the latter.

2. Understand why you’re doing it

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With conviction comes courage.

When it comes to investing, you’ll be most effective when you accept that investing in the shares of great American companies has historically been a very smart thing to do, especially over long periods of time. And investing when others are running for the hills has proven smarter still.

You know the stock market is riskier than insured bank accounts, so it follows that if it didn’t return more than insured bank accounts over time, it wouldn’t exist. Thus, I’m convinced a part of my savings belongs in stocks, not despite the risks involved, but because of the risk involved.

The Standard & Poor’s 500 index, a stock market index designed to mirror the returns of 500 big U.S. companies, has averaged an annual return of about 10% since its inception in 1928.

3. Don’t overdo it

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If you want to scare yourself to death:

  • Invest money you’ll soon need.
  • Invest more than makes you comfortable.
  • Or put your money in silly, speculative stocks that are more like gambling than investing.

Staring at the ceiling at night? This is why.

When it comes to investing in risk assets, you must never invest money you’ll need within five years, and never invest everything you have. One rule of thumb I’ve been advocating for decades is to subtract your age from 100, then put the difference as a percentage of your money in stocks. So if you’re 20, you can invest up to 80% in stocks. If you’re 80, 20%.

If you’re nervous, invest less. It’s just a rule of thumb.

4. Plan for pain

Older woman working on laptop and stressed
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It would be great if your stock portfolio, your house and every other asset you have went up in value each and every month. Unfortunately, that’s not the way it goes. But if you can accept that the potential upside of bull markets outweighs the potential downside of bear markets, it’s easier to stick with the program when times get tough.

I have a significant proportion of my net worth in stocks, so I know how it feels when things go south. But the decades I’ve spent as an investor taught me to expect the bad with the good.

When stocks have been rising for long periods of time and become overvalued — and are thus likely to go down (like now) — I don’t adjust my portfolio, I adjust my expectations. Expecting a decline means that, when it comes, I’ll be prepared instead of panicked.

5. Listen to your voice, not everyone else’s

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When it comes to investments, romantic relationships and lots of other decisions in life, develop your own voice and listen to it. If you like short people, date them. If you like stocks, buy them. If you want to live in Ecuador, move there.

People trying to steer you in one direction or another often aren’t as smart as you think they are, don’t know you as well as they think they do and may have personal agendas that don’t align with yours.

6. Consider the risk of not taking a risk

Man with cash in his pocket
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For the first few decades I invested in stocks, I mostly stood on the sidelines when times were bad, too afraid to make a move. Finally, however, experience taught me that when times are bad and everyone’s afraid, it isn’t the time to freeze. Instead, it’s the time to act.

When both the real estate and stock market tanked in the recent Great Recession, I invested a chunk of my savings in quality stocks and also bought a rental house.

Those two decisions, while scary at the time, have substantially increased my net worth today.

While there’s always a risk of losing money by investing in stocks, real estate or anything else that fluctuates in value, there’s also a risk in not doing so. As pointed out above, you’re unlikely to retire rich, or even adequately funded, if you earn an average income and are willing only to invest in guaranteed rates of return.

You can’t get a hit from the dugout.

7. Think long term

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If you’re trying to invest short term, you might as well head to Vegas, where you can at least drink for free.

When I bought General Electric, JPMorgan, ConocoPhillips and other signature stocks back in 2009, I didn’t expect them to go up right away. But because these are some of the biggest companies on the planet, I knew they wouldn’t go bankrupt and assumed that sometime before I died they’d come back. In fact, had the market continued to tank and these stocks continued to fall, I was fully prepared to buy more.

If you combine quality with patience, it will almost certainly pay off sooner or later. I have no idea whether the market will go up, down or sideways tomorrow. It’s the flip of a coin. But I’d give 90% odds it will be higher 10 or 20 years from now.

The longer your time horizon, the higher the probability you’ll be successful.

About me

Stacy Johnson at the New York Stock Exchange
Stacy Johnson / Money Talks News

I founded Money Talks News in 1991. I’ve earned a CPA and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. If you like what you read here, sign up for our free newsletter.

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