How to overcome your investment fears


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. Vanguard Australia recently surveyed more than 1,000 Australians on their attitudes and approaches to investing and the points above were all found to be barriers to investing for some people.

So, let's address them one by one. We love this article written by Tony Kaye, the Senior Personal Finance Writer of Vanguard Australia.


Do I need a lot of money to invest?

Vanguard's research found that many people think they need a lot of money to start investing.

About 70 per cent of the people surveyed believed they needed at least $1,000, and 35 per cent thought they needed more than $10,000. 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 investors set up a 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. When questioned on investment strategies, most of the respondents to Vanguard's survey noted that they invest regularly, buy more than they sell, and have a long-term approach. Of the total number of people surveyed, 44 per cent said they invest on a weekly or monthly basis, while only 25 per cent sold in the same period. One-in-three who invest said they plan to hold for the long-term, however women were 34 per cent more likely than men to hold long term.

I'm not sure where I should invest?

Some respondents to Vanguard's investing survey pointed out that their lack of investment knowledge is an entry barrier for them. 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 managed fund. These types of products 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?

Of Vanguard's survey respondents, 20 per cent noted that a barrier to entry for them was 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 early last year when financial markets tumbled heavily because of the rapid spread of COVID-19. Investors that 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 annual 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.

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