How I Overcame My Fear of Investing

Lindsay VanSomeren

By Lindsay VanSomeren
Lindsay VanSomeren is a personal finance and science writer. Check out more of her writing at Notorious D.E.B.T.
Posted on 02/04/2018

I used to think that investing was just for rich folks. Seeing as how Rich Uncle Pennybags never showed up to my family reunions, I thought I'd never really need to worry about it.

Boy, was I in for a big shock once I found out how important it really is. Not only do I have to worry about learning how to budget and get out of debt, but I have to learn about the stock market, too?

It was just too much. My fear was too great, so I stalled for a long time. Now I'm kicking myself, because if I'd started investing years earlier I could be closer to achieving my goals than I am now. But, it's not too late!

So with one baby step at a time, I'm slowly getting over my fear of investing. Here's how I've faced my fears:

Step One: Education

In my spare time, I took the time to learn about how investing works. I started with the basic principles such what stocks and bonds actually are and how I could use investing to help reach my goals. I also developed an understanding of the relationship between risk and return, and how it's most advisable to start investing once you've built a comfortable emergency fund.

Reading about the basics isn't exactly Game of Thrones-level reading. But since I've decided to use investments as a tool to reach my financial goals, it's actually a lot more interesting to get into the nuts and bolts than I thought it would be.

Once I got the basics down, I started to learn how I could actually put these ideas into action. I learned about trading and mutual fund expenses, what a brokerage account was, what the difference is between a mutual fund and an ETF, and ultimately which investments could help me reach my goals.

Step Two: Start Small

Since my research told me that there is risk involved with any investment, I decided to start with small amounts of money. That way I wasn't super worried if I made a mistake. Starting to invest with small amounts made me feel like I was using training wheels for my first bike ride. It allowed me to dip my toes into the investment waters without diving in head first.

Step Three: Robo Advisor vs. DIY

I like to think of robo advisors as sassy robots giving out investment advice, a-la Bender from Futurama. Sadly, that's not the case (or could it be? Excuse me while I assess my new business idea…).

Rather, robo advisors are either websites or apps that do all the technical decision-making and trading work for you. All you have to do is set up the account, add your money to it, and complete a risk tolerance questionnaire which will help determine how aggressive or conservative your investment strategy should be. The robots will take things from there by choosing your investments and subsequently re-balancing your portfolio for you.

Using a robo advisor was a great way for me to get started. It took some of the pressure off me since I know investing can be important but I didn't know exactly what I was doing. It felt like the robots came to my rescue by making investing a lot simpler.

Just keep this in mind: although robo avisors make it a lot easier to invest, they can charge slightly higher fees than other investment platforms where you can make the investment choices on your own.

I'm at the point now where I'm starting to break away from the robo advisors. They were useful to get started, but I've started to dabble a bit at picking my own investments. Even though I'm not a professional, it's sort of fun to take things into my own hands even if I'm using “boring” investments like index funds to help reach my goals.

So I'm slowly moving toward the “do it yourself” strategy where I'm making the decisions. I've opened an account with a platform that has low fees, low minimum investment amounts, allows fractional shares (so you can invest whatever you have rather than the full price of a share), and most importantly, lets you hand-pick which investments you want. But I'm not fully moving away from the robots just yet. It will take me some time to get comfortable with the DIY approach but I'll see how it goes!

Step Four: Using Different Account Types

It's easy to be confused by all of the different types of investment accounts out there. Some of the most common are employer-sponsored plans like a 401(k) and Traditional IRA accounts. These accounts make great solutions for retirement savings, but I wasn't fully comfortable with the idea that I couldn't withdraw my money until I'm an old fogey without the risk of a withdrawal penalty and/or tax liability. What if a crisis came up in my life and required more resources than my emergency fund? If I had to turn to my retirement accounts as a last resort, I wanted to make sure I had easier access to my money.

After some due diligence on some other retirement account types, I decided that using a Roth IRA was the best solution for me. In addition to being a great tool for people who have a long way to go until retirement (because of the favorable tax treatment in retirement), the benefit I valued the most is I'm able to take out my contributions to the account whenever I want both tax and penalty free. I know taking money out before retirement can lead to a decrease in financial stability in retirement, but the easier access is just more important to me. Traditional IRA and 401(k) accounts don't follow the same rules. Withdrawals from those accounts are typically taxable and can include an penalty if taken too early.

The ability to withdraw my contributions immediately helped relieve my fear of not having access to my money in the case of a dire emergency.

The Bottom Line

I'm glad I didn't jump into the deep end right off the bat. I would have made a lot of mistakes since I didn't even understand how everything worked. Instead, I'm very happy I got my feet wet first, and how I slowly conquered my fears.

My strategy allowed me to experience how stock market fluctuations felt. It helped me realize that the sky wouldn't fall and my favorite brewery wouldn't blow up once I invested some of my hard-earned money. I'm glad that I did my research and learned that a Roth IRA would help alleviate some of my fear of not being able to get to my money. I like the feeling that my savings aren't locked behind an iron vault.

Finally, learning more about how investing works is allowing me to develop the confidence to take things into my own hands. So wish me luck, and I hope you're able to tackle your fears too!