The stock market went bananas in 2020 and before long it seemed like everyone was investing. But around 45% of Americans are still sitting on the sidelines.
Some say it’s because they don’t have enough money to invest, which could be true for those living paycheck to paycheck. But still, nearly a quarter of Americans (24%) say they’re intimidated to invest because they don’t want to lose money, according to Insider’s Master your Money poll conducted this spring. Another 41% say they know investing is the right thing to do to prepare for the future, but they’re nervous.
While investing in the stock market can be volatile and returns are never guaranteed, the rewards ultimately outweigh the risks for the vast majority of people.
“It’s all a matter of perspective,” said Alex Crouch, a certified financial planner at Abound Wealth. “It can be easy for us to get sucked into the headlines and drama of the stock market in the short term, and that leads people to think that investing is gambling. They see a market crash and that sticks with them and colors their view of the stock market for years.”
Here’s what financial planners tell their clients to help them overcome fears around investing and start building wealth.
1. Look at the stock market’s potential for growth
Lauryn Williams, certified financial planner and founder of Worth Winning, said a lack of understanding around the stock market drives many of her clients to prefer real-estate investing. Both can be valuable tools for building wealth. But, Williams said, investing in stocks can help you work “smarter, not harder” and create generational wealth.
To illustrate the power of the stock market, Williams often shows clients a YouTube video charting the growth of $1 invested over time. The video points out every major economic, political, and global disaster to show that despite numerous shocks to the market, there’s still growth. A dollar invested in the total US stock market in 1927 would have become more than $5,000 in 2018, the video shows.
Crouch takes a similar approach. “The key is to reframe their thinking by zooming out to show that the market has steadily increased over the years,” he said.
2. You don’t have to invest on your own
It’s not uncommon to see plug-and-go investment portfolios that aim to satisfy the needs of either aggressive, moderate, or conservative investors. But not everyone fits into one of those categories. Working with a financial advisor to set up a custom investing strategy can go a long way in mitigating fear.
“Rather than letting some rule of thumb guide investments, we invest each client’s portfolio to accommodate their goals, their current situation, and their own comfort level,” said Aaron Sherman, certified financial planner and president of Odyssey Group Wealth Advisors.
Williams said: “I talk to [clients] about how it is OK to have support and not feel like you have to do all the work yourself.”
3. Some nervousness is expected
Investing money that you need in the next few years is riskier than investing for a goal that’s decades away, such as retirement. There’s less time for your portfolio to bounce back if there’s a significant downturn.
“If you will need the money you are investing within the next few years, you should have a healthy fear of investing in the stock market because short-term returns are never guaranteed,” Crouch said. Depending on your goal, it might be a better choice to put that money in a safer place like a high-yield savings account or CD.
“But if you can afford to let your money stay invested for years to come, the stock market is a phenomenal engine for growth,” Crouch said.