5 Fears that Keep You from Investing by Margarita Triantafyllidou, CFA
Photo: Frida Waywell
When I worked on Wall Street, I used to go down the long carpeted hall and chat with my female colleagues about where they invested. I was often disappointed because even within the biggest wealth management firm in the world, only some women invested outside their retirement accounts. The picture is quite different in Sweden, where only 7% of women have never invested, compared to Germany and Austria, where the figure is north of 30%1.
But even in Europe’s most gender-equal country2 there is still room to go. In Sweden, women own 50% less wealth than men, according to a 2020 study by SEB3. Even if we close the wage gap (how much women earn in salary vs. men), women won’t catch up to men’s wealth if they don’t invest at a minimum at the same rate as men.
Ok, we know the stats, but what if you’re still worried and uncomfortable about investing?
First, let me start by saying that all humans are poor judges of risk. It’s human nature that fear is visceral and gets in the way of rational thinking. Some people are afraid of flying–the safest mode of transportation available. I’m not, but still, at the slightest air turbulence while flying, my pulse beats like a drum in my chest. And yet, I feel no rush of fear when I answer a phone call while driving... Poor judge of risk!
Every type of investing involves risk, and there are no guarantees you will earn money; but NOT investing your money and keeping it in the bank is the guaranteed way to lose money if you take into account inflation (the price increases in everything you buy).
So, let’s tackle the 5 most common fears that might be holding you back one by one.
Fear #1: I’m not rich enough to invest in the stock markets
That’s one of the biggest misconceptions holding people back. You don’t need millions to start investing. Even 100 euros will do; most trading platforms have low or no minimums to open accounts. Like James Clear advocates in his popular book Atomic Habits, the most important thing is to start small, and later you can keep learning.
Fear #2: I don’t know anything about investments
You don’t need to be an expert in finance to start investing. You do need to learn the basics, so read online resources, listen to podcasts, or take our free Introduction to Investing course–whatever the method, keep educating yourself.
The more important part when you’re starting out is to know what to avoid:
Don’t invest a ton of money as a beginner: start small and increase the amounts as you learn and build your confidence.
Don’t buy just one stock. There’s no need to take company-specific risk. Remember, companies can go bankrupt and can lose 100%. Entire countries (if you invest through index funds)? Less likely.
Photo: Frida Waywell
Fear #3: I don’t have time to trade every day, so I won’t be able to make money
Day-trading (i.e., trading every day) is one way to make money. Investing passively through index funds, which requires less skill and less time commitment, is another.
“But index funds are boring! I would rather pick the stocks myself and try to outperform the market.” That’s the most common complaint I hear from people. My response? Some markets, like the US, are so efficient that index funds might be a better investment than picking the stocks yourself or even selecting active funds where a professional portfolio manager is trying to beat the index. As of November 3, 2023, only 12% of all actively managed funds outperformed the S&P 500 Index over the last 10 years. If these professional investors with large teams and resources who do this all day, every day, can’t perform better, could any of us do it when we invest part-time?
For the most efficient markets, investing through low-cost index funds gives you a risk/reward for your time and effort compared to a DIY approach (i.e., picking the stocks yourself).
Fear #4: I’m risk-averse. I would rather buy a house than invest–that’s safer
As mentioned earlier, humans are poor judges of risk. It’s true with investments as well. Buying a house is not necessarily safer than investing. In fact, it is a lot riskier because when buying a house:
a) you are taking an enormous loan (assuming a 20% down payment, then you are borrowing 4x your money)
b) you are investing this borrowed money into one thing, one house/apartment in one geographic area, which is subject to trends within that area.
c) you can only liquidate it if someone else is willing to buy it, which, as we’ve seen in the last couple of years, might be trickier than expected and could take months, if not more.
I’m not saying don’t buy a house/apartment. The longer you intend to stay in a house, the more beneficial it might be for you to own it. In fact, it’s one of the key ways people build wealth. But let’s just clear the misconception that it’s not necessarily “safer” to do so, compared to the stock markets.
Fear #5: I could lose all my money
As mentioned earlier, yes, if you buy one individual stock, that can happen. With global equity index funds (funds that track global stock market indexes, like the MSCI World Index) it’s unlikely you will lose 100% of your money because that would mean the 1500 biggest companies in the entire world would need to collapse down to zero. You still could lose money, of course.
What’s the worst that could happen? No one knows what will happen in the future but I can tell you what happened in the past 30 years: If you timed it in the absolute world day of buying a global index fund at the very top and sold it at the very bottom of the market, then you could have lost about 55%4 based on the MSCI World Index in USD. That’s the worst that has happened. (Markets don’t repeat exactly, but they do tend to rhyme).
Over a long-term horizon, the global markets have returned 8%, that’s year after year. Doesn’t sound like much? With 8% compounded, meaning earning interest on your interest/gains, you could double your money (2x) in 9 years5 (not guaranteed—nothing about investing is). In 18 years? You could make 4x. In 27 years? 8x. The longer you keep your money invested, the more the compounding effect works. (Fun fact: 99% of Warren Buffet’s wealth was created after his 50th birthday).
Thank you for reading! If you want to learn more about our courses on long-term investing strategies, you can visit our website financelatte.com and follow us on Instagram @FinanceLatte.
Finance Latte is a financial education company aiming to inspire and educate women about investments. It’s where my expertise in major US Wealth Management firms meets my passion to empower women. It’s time to change those stats. Let’s get started!
1.BlackRock 2021 study: https://tinyurl.com/3e5pnaph
2.Europa 2022 Gender Equality Index: https://tinyurl.com/yc8sbsur
3.SEB Sweden gender wealth gap: https://sebgroup.com/sustainability/our-impact/the-equality-case
4.Curvo backtest: https://tinyurl.com/2mxw6m7y
5.https://www.visualcapitalist.com/visualized-how-long-does-it-take-to-double-your-money/
Disclosures: Finance Latte AB is not a registered investment advisor. This content is for informational purposes only and should not be interpreted as specific investment or tax advice. Investors should make investment decisions based on their unique investment objectives and financial situation. While the information is believed to be accurate, it is not guaranteed and is subject to change without notice. Past performance does not guarantee future results. Market indexes are unmanaged and cannot be invested into directly and are not meant to depict an actual investment.
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