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5 Tips to Conquer Your Stock Market Fears

By Adam Levy - May 9, 2021 at 6:35AM

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Don't let your emotions hold you back from making good financial choices.

The idea of making a wrong move with your money and losing what you worked so hard to earn can induce anxiety and fear. It can be so crippling, in fact, that you take no action at all in order to avoid potential regret.

You probably know investing in the stock market is one of the best ways to grow your savings and secure your future. The logical center in your brain is encouraging you to take that first step and put some money to work. But the emotional part of your brain keeps holding you back.

Here are five ways to conquer your stock market fears.

A woman biting her nails.

Image source: Getty Images.

1. Stop visualizing the worst-case scenario

It's easy to visualize stock market crashes. Big crashes like we saw in 2001, 2008, and 2020 make the headlines -- and not just in the financial section. We hear about crashes more than anything else related to the stock market, and we remember them whenever we think about the general idea of "the stock market."

This is the information the average beginner investor has about the stock market after consuming media for their entire life. The truth is that the average day, week, or month in the stock market is pretty boring. But boring doesn't make for good headlines.

It's important to consider what's typical of a stock investment. Sure, consider the extremes, but don't focus on them.

Thinking the stock market will crash as soon as you invest is like thinking you'll win the lottery when you buy a ticket. Neither are very likely, but by focusing on them, you give them more weight than their mathematical probability, ultimately leading to subpar financial decisions.

2. There's no need to be afraid of being wrong

You need to separate your decision to invest from the outcome of that decision. What that means is that if you invest today and then stocks tumble over the next few weeks, that doesn't mean you made a bad decision. It means you had a bad outcome.

Bad outcomes will happen. The important thing to assess is whether you made a smart decision given the information you had at the time. That's what you can control.

The best poker players in the world don't win every hand they play. They make decisions based on imperfect information. If they keep playing hands and making good decisions, they win money over time.

There's no need to regret a decision with a bad outcome if you would make the same decision again with the same information available. Keep making those good decisions, and ultimately the market will pay you for it.

3. Change your point of view

Imagine you're advising someone else what to do with their money, instead of trying to make the decision for yourself. Doing so can help you focus on the logical reasons for investing instead of any emotional baggage you might be bringing to the table.

Another point of view to consider is your future self. What would your future self want your present self to do with their money? After all, when you're saving and investing, you're not doing it for your present self; you're doing it for your future.

Just make sure you follow your own advice.

A man looking fearful.

Image source: Getty Images.

4. Change your frame

Have you watched the stock market climb ever higher since the coronavirus crash in March of 2020? If you're referencing market prices based on their 2020 lows, you'll never pull the trigger and invest.

The past doesn't matter in investing. Stock prices are based entirely on future expectations.

By changing your reference point to today's prices instead of what prices were in the past, you'll be able to make a decision more easily. Don't get caught up in trying to time the market or get the best price on a stock. A great stock trading at a good price is good enough for Warren Buffett, and it should be good enough for you too.

Another frame people often fall into is weighing potential gain versus potential losses. People are averse to taking risks for potential gains, but they will seek out risk if they're otherwise guaranteed a loss. 

Take advantage of that psychological tick by thinking about your lost opportunity from choosing not to invest. If you could reasonably expect your investment to double over the next decade, think of it like losing your entire savings if you wait to invest for 10 years. That's the opportunity cost of waiting.

5. Consider your next-best alternative

If you didn't invest the money you're saving, what would you do with it?

If you put it in a savings account, you'll earn less than 1% at today's rates. Inflation will eat away at any gains you earn on your principle.

Maybe you don't want to save the money at all, instead spending it on a vacation or home improvements. Is that really a good use of the money, though? Maybe; maybe not.

The stock market offers the most accessible way to substantially grow your savings over time. By all means consider your alternatives, but finding a better option for your money will be very difficult.

If and when you can't find a better alternative for your money, you'll probably be ready to invest it in the stock market.

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