Understanding the Fear of Investing
Despite the proven potential for positive returns, many people are nervous about investing in the stock market. Recent Gallup survey data indicated that mere 54% of U.S. adults own stocks, down from 62% in the pre-recession era. Last bear market left many disillusioned, potentially changing Americans’ views on stocks as a viable investment.
Bank Deposits V/S Stock Investment
If safety is a primary concern, bank deposits could seem appealing. However, the current interest rates, at 0.01 percent, yield negligible returns. On the contrary, stock market’s long-term average annual return being around 10 percent, investing $10,000 at a 7 percent interest rate can generate $150,000 over a period of 40 years.
Role of Emotions in Investment Decisions
Investor emotions often lead to detrimental decisions, such as pulling money out of the market during a downturn. History suggests, the longer the money stays in the market, the higher the probability of gains. Morningstar data shows consistently positive returns for 15-year periods, holding true over 90 years of market history.
Strategies for Courteous Investing
If the thought of investing a lump sum is overwhelming, consider investing in smaller amounts over time, using the technique of dollar-cost averaging. You can also take advantage of super simple target-date mutual funds. These funds offer automatic diversification and adjust the asset allocation based on your anticipated retirement date, guiding to a more conservative portfolio.
While a bear market can stain the investor sentiment, investing in the stock market remains a viable tool for wealth generation. Employing cautious investment strategies, understanding the role of emotions, and giving your investment time to grow are key to mitigating fears associated with investing.