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Is This Irrational Fear Keeping You From Financial Success?

By Selena Maranjian - Sep 17, 2015 at 12:40PM

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Financial success can require overcoming some ill-founded worries about investing.

Don't be afraid of investing -- it can help you a lot. Image source:

Fear can really get in our way, such as if we're too afraid to ask out someone who might turn out to be a lifelong partner or if we're too afraid to try eating raw clams when we might really love them. Irrational fear can mess up our chances of financial success, too, such as if it keeps us from taking advantage of the best way to build wealth over time.

The folks at recently surveyed Americans and found that 37% of them -- 31% of men and a whopping 43% of women -- are afraid of investing. That's bad news, for a number of reasons:

  • For starters, according to the 2015 Retirement Confidence Survey, 53% of American workers who were asked how much they have saved for retirement and answered have less than $25,000 saved (excluding the value of their home) and 35% have less than $1,000 saved.
  • Social Security, expected to replace about 40% of our pre-retirement earnings, will not be enough for most of us. As of July, the average monthly benefit was $1,336 per month, which is only about $16,000 per year. If you earned an above-average wage for most of your life, you can expect to collect more than that, but it's still not likely to be a sufficient retirement income in your eyes.

Most of us clearly need to invest, if we want to live comfortably in retirement.

Why fear investing?
So why are so many of us afraid to invest? Well, lots of reasons. CreditDonkey offered a few responses: "I'm afraid of losing the money." "... I don't have time to constantly watch the market." The good news here is that most reasons are largely groundless. Let's review some.

Investing for the long term in healthy, growing companies isn't gambling, and it's very likely to pay off. Photo: Matthew Powell, Flickr

Afraid of losing money?
Well, if you do nothing, or just keep your money in a bank account or interest-bearing account paying, say, 2% or 1% or less, you'll definitely lose purchasing power over time. Thanks to inflation, your money won't really be growing. If you're willing to take on more risk, you can aim for better returns. The stock market has averaged annual returns close to 10% over many decades, and over most multi-decade periods, it outperforms bonds, too.

If you invest in the overall stock market, you will see it rise in value and also fall, on occasion. Market downturns are inevitable. Still, over the long run, the market has always risen, which is why it's a good place for long- but not short-term money. If you invest in individual stocks, it's likely that some will shrink on you, but in a strong portfolio, winners should more than offset losers. Financial success doesn't mean that you won't have some disappointing investments now and then.

No time to constantly watch the market?
You don't need to spend any time watching the market if you invest in it via low-cost, broad-market index funds, such as the SPDR S&P 500 ETF, Vanguard Total Stock Market ETF, and Vanguard Total World Stock ETF. Respectively, they will distribute your assets across 80% of the U.S. market, the entire U.S. market, or just about all of the world's stock market. You can just leave your money in them for years.

Don't know much about companies and the stock market?
Again, index funds come to the rescue. If you enjoy studying companies and learning about investing and you want to aim for stock market-beating results, go ahead and invest in individual companies. But it's really fine to just stick with index funds. They have outperformed the majority of managed stock mutual funds over many long periods and are a very sensible path to financial success.

You don't need a lot of money in order to invest. Image source: Reza, Flickr.

Don't have enough money to invest?
You don't really need much. Of course, the more you invest, the bigger your nest egg will grow, but small sums can amount to a lot, too. Imagine, for example, investing just $1,000 in the stock market each year for 25 years. If it grows by 10% annually, it will become $108,000, a significant sum. Can you do $3,000 each year? That would grow to $325,000. $5,000? More than half a million dollars!

You think real estate is a better investment?
A home is a great place to live, but not necessarily a great investment. Nobel-prize-winning economist Robert Shiller is famous for his studies of the housing market, and his data suggest that housing prices have grown at a compound annual rate of just 0.3% over the past century (inflation-adjusted), while the S&P 500 has averaged roughly 6.5%.

Don't let any irrational fear keep you from reaching financial success and a comfortable retirement. Social Security isn't likely to suffice, so you probably need to invest. 

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