Investing: Nothing To Fear But Fear Itself

Posted on September 24, 2014 at 4:16 PM PST by

If you ask a typical retirement investor what concerns them most about investing, they’ll probably say, “Losing all my money.” And this kind of concern is not misplaced.

But if you dig down a bit into what they mean by that, you will find that their fear is not losing money but what happens when the stock market declines sharply. What they fear is a stock market crash.

Rightly so, but also wrongly so. Because the real danger in a stock market decline is not that the face value of your investments might be lower for a while but the risk of you personally panicking and selling at that low point.


If you ask a longtime investor, someone who has had money in the market for decades, you’ll find they have a completely different perspective. After all, if you’ve seen your investments rise and fall and rise again over the years, everyday dips and blips become meaningless.

What’s more, by then you will have collected stories of friends who rode down stocks during a crash and, unfortunately, sold at the bottom. If you were among the fortunate few who managed to stay in and even buy, those “bad times” are remembered fondly.

Fondly because there are bargains everywhere. That’s the beauty of dollar cost averaging. If you save steadily and invest steadily, you end up buying not at the market highs or lows but at the averages. Over time, the total return on a well-designed portfolio will greatly surpass those average “get in” prices.

Moreover, you get more shares at lower prices, which is like rocket fuel to a retirement account since more shares means more dividend payments and more opportunities to rebalance and compound, on top of the new, incoming dollars you save.

As FDR famously said in his inaugural address in 1933, that “the only thing we have to fear is fear itself.” He was speaking from the depths of the Great Depression, truly a frightening time, but he was able to put fear into context.

Beat investing fear

The context for you as a long-term investor isn’t so different. Think hard about your goals, what you want to achieve, and what a reasonable outcome might be for your investments.

Long experience suggests that a market rate of return is plenty enough to compound your savings into wealth over the decades. So the risk truly becomes not investing but failing to invest, not taking risks but failing to take them, not a market collapse but becoming frozen with fear over them.

Market crashes happen, and people recover from them and find their savings goes on to greater heights. The trick is finding a way to put aside your fears and confidently invest regardless of how things might seem in the near term.