For anyone who has been in investing for so long, you may have seen all the different sides of the market. Currently, it is on its all-time highs. A trend that is this positive make speculators warn investors to prepare for a very devastating crash. We all know how these crashes had wreaked havoc in the past. Thus, it is normal for investors to develop market fears. But what are these market fears? How do we overcome them so as not to let them hinder us from the true potential of investing? Find out more about how to conquer investment fear as we go along this article.
How did you develop Investment fear?
Fear is one of the five common emotions that go against you in trading. Before we talk about how to conquer it, let us first get to know how investment fear is developed. Investors who had bad experiences in the past usually develop a trauma that limits their investment potential. Most of those who are afraid to invest, develop market fears stemming from the fear of losing money or the fear of running into unforeseen risks. Lastly, those who are just planning to invest usually develop investment fear by not knowing where to start.
All of these are forms of investment fears. All of these are valid fears that stem from valid reasons. Running away from the cause of our fears is the common way of survival. But considering how huge the potential returns of the market, not investing would probably be the worst outcome of these fears. These fears make investors ignore logic, resulting to missed opportunities. Thus, we have to conquer them in order to fully maximize the potential of investing.
How do you conquer these fears?
Accept the truth – There will always be risk involved in the market. There is nothing we can do to eliminate it. Instead, follow the steps below in order to hedge against it. Do not let your fear stop you from investing. The truth is investing in the market is the best way to grow your money over time. The only way that you would run into risk is when you start investing with no preparation at all. That’s when all your market fears come true.
Develop an action plan – There is no better way to gain the upper hand in the market than investing with enough preparation. You wouldn’t go to war without a plan, because that’s a great way to ensure a loss. Before you even start investing, educate yourself. Overcome your fears by knowing your enemy. Create a step by step plan which you would follow later on. That plan would be your road map to wherever your goal is.
Read more about the importance of a trading plan.
Be consistent – Now that you have a plan, be consistent with it and follow it slowly, but surely. You don’t have to go through the process quickly, build your pace and start from there. Becoming a systematic investor with a solid plan would help you overcome your fear of investing. Start by educating yourself and invest from there. A lot of instances would try to waver you from your plan, but the key here is to be disciplined and hold on to what you initially started.
How to hedge the risk of losing money?
Start small – Do not go all-in when investing. Instead of simply throwing all your money in the market at once, start with whatever you are comfortable with and build from there. That way, you can start developing your strategy without risking too much if it doesn’t work out. Also make sure that you only invest what you can afford to lose. Set aside emergency funds and some cash enough to pay for your bills. Invest only the money that you aren’t planning to spend anytime soon.
Dollar Cost Averaging – The market undergo through some ups and downs. There is no assurance when is the right time to enter and exit the market. To take advantage of this behavior of the market, try investing through DCA or Dollar Cost Averaging. With this strategy, you can start with a small amount, and then automatically invest the same amount at regular intervals. Starting with any small amount could end up with a significantly huge amount after some time, while eliminating the various emotions you usually experience in investing.
Diversify your portfolio – Avoid investing heavily on a single asset. Diversify your portfolio by investing in various securities, or opt to invest on funds to get instant diversification. This way, if the market turns down one of your assets, it won’t have as much impact to your portfolio compared to focusing only on one investment.
Go long – The best way to lessen the risk in the market is by being a long-term investor. Not only would you be able to control the amount of returns that you’re already satisfied with, but you can also ride out most of the ups and downs of the market. Historically speaking, most investors had more benefit when investing over the long run.
Ignore your investments – Now that you are planning to stay invested for a long time, there is no reason to check your investments every minute since you are not planning to exit anytime soon. Lessen your anxiousness by letting your investments grow by themselves. Still, take time to rebalance your portfolio every now and then, but avoid making rash decisions over temporary market adjustments.
Read more about hedging techniques to lower your investment risks.
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