If investing scares you or feels out of reach, you can take heart in the fact that you’re not alone.
A recent survey commissioned by Ally Financial found that 70% of Americans age 18 to 39 know that they will eventually need to be more financially secure, but don’t know how to get there.
Sixty-one percent of those same respondents said that they found investing in the stock market to be “scary or intimidating,” with Millennials feeling more intimidated than those in other age groups.
And 50% of the respondents knew that they would need to start investing in the stock market at some point, “but not right now.”
Quite simply, a lot of people know that investing is important, but are either too scared, too intimidated, or too uncertain to get started. And Millennials are leading the way.
That’s the bad news.
The good news is that there are some really simple ways to get past all of those fears and start investing now, no matter how much money you have or how much investing knowledge you already have (or don’t have).
Let’s tackle them one by one.
Fear #1: I Might Make a Bad Investment and Lose Money
Half (50%) of the Ally survey respondents said that the fear of making a bad investment and losing money kept them away from investing altogether.
This fear is not without merit. After all, you ARE guaranteed to lose money in the stock market at some point, and occasionally those losses will be pretty big.
But there are two reasons why this fear shouldn’t stop you from investing.
First, the returns you earn, good or bad, don’t actually matter much when you first start investing. What DOES matter, a lot, is your savings rate. The more you save, especially early on, the more likely you are to reach your financial goals no matter what return you get.
This means that while you certainly might make mistakes, and while you might lose money even if you do everything right, none of that is a problem as long as you keep saving. Your contributions will keep you on track even if your returns are lagging.
Second, it’s actually pretty easy to invest in a way that’s likely to deliver superior results. Index investing has been shown to outperform 80% to 90% of professional investors, and nowadays you can get an entire index-based portfolio with either a single mutual fund or a robo-advisor.
There will still be ups and downs along the way (there always are), and nothing is ever guaranteed, but the best research we have says that these all-in-one portfolios not only make investing incredibly simple, but are likely to outperform most other approaches over the long-term.
In other words, you don’t have to fear making a bad investment decision. It’s pretty easy to make a good one, and any mistakes you do make aren’t likely to cost you much as long as you continue saving money.
Fear #2: I Don’t Have Enough Money to Invest
More than a third (35%) of survey respondents felt that they didn’t have enough money to invest — essentially that investing is a rich person’s game and not something you can do when money is tight.
Now, some people really are living on the edge and don’t have extra room in their budget for anything beyond the necessary expenses. But many people have at least a little money available to save, and the truth is that you can get started investing now matter how much you have.
The easiest place to start is with a 401(k) or other employer retirement plan. There are no minimum contributions, and if you have an employer match you may even be able to quickly double your money with every dollar you invest.
If you don’t have access to a 401(k), you could open an IRA with a platform like Betterment that offers low-cost, index-based portfolios with no minimum balance or contribution. Or, if you have at least $1,000, you could open your IRA with Vanguard, one of the leading providers of high-quality, low-cost index funds.
There are plenty of ways to start investing without a lot of money. And really, investing even a little bit now will reduce the amount you have to save later on, making it even easier to fit those contributions into your budget.
Fear #3: I Don’t Know Who to Trust
Thirty-one percent of survey respondents said that they didn’t know who trust when it comes to investment advice, and honestly this is one fear that is right on the mark.
The world of investing IS filled with a lot of untrustworthy voices, from the people who are actively trying to rip you off to the people who quite simply don’t have any idea what they’re talking about.
It’s hard to know who to trust. But there are a couple of ways to get past this.
First, if you do want good, honest professional advice, seek out the help of a fee-only financial planner. These are professionals who have purposefully chosen not to accept commissions or other payments from financial companies, putting themselves squarely on the side of their clients.
Second, the tools and information available to consumers today are better than ever, giving you the opportunity to trust yourself, learn the basics, and put a top-notch investment strategy in place all on your own.
Here at The Simple Dollar, we have resources to help you choose the right retirement accounts, choose an investment company, learn about index investing, choose a target date retirement fund, consider a robo-advisor, and much more. And there are many other books and websites that will teach you what you need to know (which honestly isn’t all that much) so you can get started.
You should be wary about who you get your advice from. But there are enough trustworthy resources that it shouldn’t prevent you from investing.
Fear #4: I Don’t Know How to Get Started
About a quarter (24%) of survey respondents said that they didn’t know how to get started investing. Which, again, is understandable given all the options available and all the conflicting advice you’re bound to run into.
Luckily, there are some easy ways to keep it simple.
The simplest way to start is by contributing to your 401(k) or other employer retirement plan, if you have one. Your contributions will automatically be deducted from your paycheck, and most 401(k)s now allow you to invest in a target date retirement fund that gives you access to an entire portfolio in one fund. With those two moves, you’re on your way!
It is a little trickier if you don’t have a 401(k), since you’ll have to do a little more legwork on your own. But like we talked about under Fear #2, it’s pretty easy to open an IRA these days without any contribution or account balance minimums, automate your contributions, choose a target date fund, and again let things run mostly on auto-pilot.
Remember, the key to getting started is simply contributing money somewhere. No investment decision is anywhere near as important as your savings rate, so as long as you’ve got that, you’re on the right track.
Don’t Be Scared of Investing!
Investing doesn’t have to be scary, and there’s really no reason to worry about making a mistake.
In fact, the biggest investment mistake you can make is NOT getting started, since the simple act of saving money is the most powerful tool you have at your disposal.
You can start investing now, no matter how much you know about it and how much money you have, and put yourself on the right path towards both financial security and financial freedom.
Matt Becker, CFP® is a fee-only financial planner and the founder of Mom and Dad Money, where he helps new parents take control of their money so they can take care of their families. His free book, The New Family Financial Road Map, guides parents through the all most important financial decisions that come with starting a family.