How to overcome your investment fears

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You're ready to start investing, but there's a few things holding you back.

Firstly, while you have a bit of money set aside, you don't have a lot and you're thinking it's probably not enough to start off with.

You also don't know a lot about financial markets and different types of investments. With so many investment choices out there, which is the best way to go?

Then there's that underlying fear of losing your money if you do invest. After all, share markets are notorious for their volatility.

These are all legitimate concerns that can be barriers to investing for some people.

So, let's address them one by one.

Do I need a lot of money to invest?

Many people think they need a lot of money to start investing.

But, contrary to those beliefs, you don't need thousands of dollars to begin. Far from it.

You can start investing with just $500 and then invest smaller amounts over time to increase your existing investment holdings.

Many Vanguard Personal Investor customers set up an automated regular investing plan using their accumulated savings so they keep adding to their holdings and take advantage of compounding investment returns over the long term.

An advantage of investing this way is that, rather than trying to pick a good time to invest, buying at different times allows you to average out your total cost of investing.

Having a spread of different assets will help reduce risk and minimise any losses.

I'm not sure where I should invest?

Lack of investment knowledge can also be entry barrier for some people.

That's understandable. With such a wide range of investment options out there, it can be hard to know where to start. But a good first step is to understand what it takes to be a successful investor.

We believe that successful investing revolves around four key principles:

The need to set investment goals and create an investment strategy to achieve them.
Having a broad spread of investments across different types of assets to reduce your risk.
Controlling what you spend on investments by targeting low-cost products that will increase your share of returns.
Being disciplined and patient so you do achieve your long-term investment goals.
Following these principles will help you to narrow down your investment choices.

Having a broad understanding of investment assets and product types is prudent. You can learn about different assets and products on the Vanguard website on our Investment Products page.

Where to invest generally comes down to goals, your preferences, and your tolerance for risk.

To make the decision process easier, many investors are choosing low-cost diversified products that offer a mix of income and growth potential within a single fund.

These types of ready-made portfolios are professionally managed and invest in multiple asset classes, including shares, bonds, property, and cash.

If you're unsure what is the best strategy for you, it may be worthwhile consulting a financial adviser to help guide you towards investments that are most appropriate for you.

 
Will I lose my money?

Another barrier to entry for many people is the fear of making a poor investment.

This is sometimes referred to as loss aversion – the fear of losing some or all of your money.

Investment loss is a valid concern because all investments carry an element of risk.

That was very evident in 2020 when financial markets tumbled heavily because of the rapid spread of COVID-19. Investors who panicked and sold their investments at that time would have recorded substantial losses.

Yet, less than six months later, financial markets had not only recovered but some share markets were close to reaching record highs.

Investors who stayed the course through the market volatility were much better off than people who sold.

In fact, if you look at the performance of financial markets over the longer term, one of the things that really stands out is that investment returns across a range of different asset classes have been very strong.

The Vanguard Index Chart powerfully illustrates how sticking to a disciplined investment plan, with diversification across a range of asset classes, will invariably override short-term market volatility and deliver long-term returns.

It's always important to do good research before choosing any investments, and having a spread of different assets will help reduce risk and minimise any losses.

Tony Kaye, Senior Personal Finance Writer
27 Nov 2024
vanguard.com.au