Investing

Stanford researcher: Why investing can feel scary, and how to get over the fear

Twenty/20

For first-time investors, getting over the fear of losing money in the stock market can be hard. But investing is the best way to grow your wealth, experts say, and more than 3 in 4 investors, 77%, regret not getting started earlier, according to a recent survey by Magnify Money.

When you have conflicting motivations, the fear-based motivation is often what you will act on, says social science researcher B.J. Fogg, author of "Tiny Habits: The Small Changes that Change Everything" and founder and director of the Stanford Behavior Design Lab.

"Hope is pushing you up and fear is pushing you down," says Fogg. "So you can think of those as vectors pushing against each other."

"People will think, 'If I go to the gym this good thing will happen, or if I move to New York this good thing will happen,'" he says. "At the same time they have fear. Like, 'If I go the gym I'll look stupid.' 'If I move to New York I won't have any friends.'"

If you want to invest and grow your wealth but are scared of losing money, the fear can end up determining the choice you make.

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Long-term investing doesn't have an immediate pay-off. That's can make the risk seem even less appealing, according to Lisa Marie Bobby, psychologist and clinical director of Growing Self Counseling & Coaching in Denver, Colorado. "Human beings are wired to prioritize immediate gratification and short-term gains," she says.

So, to a new investor, the more immediate risk of losing money can feel more real than the eventual pay-off of buying a dream home or being able to retire comfortably. Even if people understand that investing can make them money, Bobby says, it can feel like a "lock that is attached to a very long-term goal."

"It is very hard to be emotionally connected to that thing that is happening 30 years from now," she says.

Hope is pushing you up and fear is pushing you down.
B.J. Fogg
founder and director of the Stanford Behavior Design Lab

The rewards can be considerable, though. And tracking your progress can help keep you motivated. Tori Dunlap started her Roth IRA when she was 21 with $500. Just four years later, that account now holds more than $37,000, thanks to her own contributions and market gains — and Dunlap recently achieved her goal of saving $100,000 before her 25th birthday.

Part of the reason she was able to build wealth so quickly is because she invested. "Investing is really pretty simple once you get started," says Dunlap, who is now a financial consultant and the founder of Her First $100K. "It's like climbing some stairs, but that first step is superhigh."

Two strategies that can help you overcome investing fears

1. Build up good 'tiny habits'

To get over the fear of investing, address the anxieties that are stopping you, Fogg says. "Some people make the mistake of saying, 'Oh, I just have to motivate myself more,'" he says. "But if you don't take away the fear, you just create more tension" in your life.

He suggests the temporary "tiny habit" of setting a timer for 10 minutes per day, three days in a row, and using that time to learn more about investing. This could include topics like how the stock market works or how to set up a 401(k). And the 10-minute time frame is small enough to not seem burdensome. You may even want to continue the routine well after the three days.

"If you say 30 minutes in one day, you're not going to do it," he says. But "10 minutes sounds a lot easier."

The more you hear about a topic, the more comfortable you become with it, thanks to what's called the mere exposure effect. So reading about investing can condition you to get started.

2. Create a plan for staying calm when the market gets bumpy

Education is a big factor in fighting your fear of investing, agrees Mark La Spisa, a certified financial planner and president of Vermillion Financial Advisors in South Barrington, Illinois.

When talking to first-time investors, he also likes to address how they can manage expectations. To do this, he shows them an Ibbotson chart, which shows the hypothetical value of a dollar invested in the market since 1926. Investors can see bumps and drops, along with subsequent market recoveries — and a steady upward trend.

"They will usually find that the market over the last 90 to 100 years has performed in a negative way 25% of the time and positive 75% of the time," he says.

Seeing this chart helps prepare clients for market fluctuations — and especially those times when the market does drop. Creating a plan for handling market bumps can help you avoid expensive mistakes. And with that long-term perspective that every market downturn has ended in an upturn, you might feel more confident about getting started.

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