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My Dad and the advisor convinced me to invest my life savings into a high tech, high growth managed fund inside an ISA.
Within months the dot com bubble burst and my life savings went from £7,000 to £1,200. I lost 83% of my life's savings. By 2005 it had recovered to £1,400 and I sold it all off to go and volunteer in Costa Rica.
This one incident scared me off investing for 15 years.
Now, 21 years after that first bad investment, 79% of my net-worth is in stocks and shares and once we sell off our investment properties that number will rise to 95%. What changed? How did I go from petrified of investing, saying I would NEVER invest in stocks and shares again to being the biggest advocate for them?
This article is designed to help you have more confidence when starting to invest.
Why should you be scared of stocks and shares?
There are some good reasons for you to be afraid of investing. My wife Katie likes to repeat to me "a little bit of knowledge is a dangerous thing" when we run our Rebel Finance School events.
When I first invested back in 2000 with my Dad I had a tiny bit of knowledge. I didn't really know what my options where, I didn't really understand the stock market or investing and I just trusted one person's advice.
I got severely bitten. So did my Dad.
In fact I have watched multiple family members and friends lose fortunes in the stock market. I hear tales of woe about losing life savings, retirement funds and more. With all that is out there about the pain of investing sometimes I am surprised that anyone does it!
Before we dive into how to overcome the fear of investing I think that a little bit of fear is healthy. If you didn't have this then you wouldn't commit the time and energy needed to learning about it before investing. A little bit of fear is a good thing.
There is a good reason to be afraid of snakes. They can kill you. The problem comes when it is not fear but a phobia that paralyses you and stops you moving forward in life.
A little bit of fear keeps you safe. Phobias stop you and are normally irrational.
Reasons to be a little bit of afraid of stocks and shares investing:
I can hear you saying "OK Alan, this article is not helping me, I thought you were going to help me feel more confident investing!"
Let's get into it
Why you should invest in stocks and shares
The stock market is the most unbelievable wealth building tool that is available to us all. You can take the dollars and pounds you earn and invest it over the long term. This money then grows and compounds to a point where you don't need to work any more.
Katie and I took our savings on a monthly basis and bought stocks and shares. They grew (dividends and capital growth) and compounded to a point where we had more than we needed for the rest of our lives. We retired at 35 (Katie) and 40 (Alan) so we could travel the world and have fun helping other people.
The freedom that stocks and shares have given us, the freedom that we have seen it give other people is unbelievable (it feels unbelievable until you start doing it yourself). If you want to build a life where you don't have to work for money but rather your money is working for you I can not think of a more powerful tool currently.
The upside of investing is HUGE, but so many people get burned by it they are scared off forever. After my Dad's investing debacles my Mum is permanently scared of investing. I was scared for a long time.
Here is how I overcame my fear of investing and my top tips for how you can do the same
How I overcame the fear of investing
As some of you know I am a HUGE fan of self-development. I have been a life-long learner ever since I was given Notes from a Friend, a book by Tony Robins which changed my life forever.
In 2014 I heard that Tony Robbins was releasing a new book, Money: Master the Game. I was so excited. I trusted his advice and was desperate to read the book. I bought two copies so my wife and I could read it at the same time. We did our own little book club together.
Don't bother reading it! There are so many better investing books like The Simple Path to Wealth by JL Collins. But this book is the genesis of my stocks and shares investing turn around story.
The book clearly showed me why I had lost money in the dot com bubble in 2001. I had invested in a managed fund and a high growth one at that. I had gambled my money on stock picking which is a terrible idea! In fact through that one book I really understood why my father had lost money investing and explained so many of the scare stories I had been told.
It persuaded me to give investing another go. So Katie and I did just that. We opened ISAs and started with a mix of equity index funds and bonds. We told our friends about the book. One friend replied "if you liked that then you are going to love the financial independence world and Mr Money Mustache!"
Katie quickly devoured Mr Money Mustache's blog, we read about index investing and the principles of FI. The more we read, the more confidence we got but we were still playing around the edges. We didn't feel confident enough to go all in and invest our life savings.
Eventually Katie spotted a week long retreat all about financial independence called Chautauqua. She told me all about it and asked if I wanted to go to Ecuador with her to meet Mr Money Mustache and learn about investing and money. It took me about 3 seconds to say "YES!!!"
The retreat in Ecuador turned out to be a real turning point in our lives. We met the Mad Fientist, Mr Money Mustache and JL Collins. Meeting three of the top financial independence bloggers in the world, asking them about their investments and seeing how they got to retire early blew my mind and gave me the confidence to go all in.
The day after Chautauqua we took our life savings and invested it all in one simple Vanguard index fund. We have never looked back. We reached financial independence in 2019 and I am so grateful for the people that changed my mind about investing and helped me overcome my paranoia! I hope I can do the same for you.
How you can overcome the fear of investing
Here are my top tips for you to become more confident in investing. And it all starts with education. The more I learnt about investing and what works and what doesn't, the more my confidence built.
Learn about investing
The first step to overcoming fear is to understand the subject and what you are afraid of. It all starts with education. Katie and I have written a huge amount of articles about investing and curated some of the best content from across the internet for you. If you want to start learning then go to our beginners guide to investing.
Write out your fears
The second thing that can help is writing out and actually defining your fears. This can help you to see if they are rational and you need to come up with a plan to mitigate them or if they are irrational fears of investing and you need to act in spite of fear.
My original fear of investing was that I would lose all my money; AGAIN! By writing out the fear and then working out what went wrong the first time I got comfortable having a second go. I started small, invested and learnt as I went along. This combination of action and understanding helped me move past fear into confidence.
Write out your fears and then try to understand where each one is coming from, what it is trying to protect you from and think about ways to mitigate them.
It helped me move forward once I understood that I lost money because I invested in an actively managed fund (which is on the stock picking end of the spectrum) and that if I had invested in index funds for the long term instead I would have had different results.
Do you think that we had the confidence to invest £100,000 on our first attempt? NO WAY! I was scared of investing £500 and losing it. So I started small, investing £100 a month and as I got comfortable and understood what was going on I upped my investments.
The way to get past fear after learning about the market and understanding your fears is ACTION. At some point you have to get in the game to experience it.
A lot of the people we talk to are sceptical of investing in SIPPS and Pensions. They ask so many questions about how it works, what happens and what if XXX happens. The only way I truly understood how I get to invest with pre-tax money was by doing it.
I opened a SIPP, I invested £100 and then magically a month or so later £25 turned up from the government giving me back the tax I had already paid on that money I invested. I was amazed. That then gave me the confidence to invest £1,000. Then £250 turned up for me and I realised it was not magic but just how the system works.
I never would have got comfortable doing this if I hadn't just started! At some point you just have to get in the game and try. Katie and I wrote a whole article about getting in the game and how to start investing.
Meet people who have done it
One of the biggest things for me was meeting people who had actually achieved financial independence. The people that have done it, rode the ups and downs and come out on top. Sitting with Mr Money Mustache and hearing him talk about going through the 2008 financial crisis and how he thinks about money gave me a level of confidence in our strategy that is intangible.
Now you might not be able to go meet them all like we have but that doesn't mean you can't learn from them on their blogs, podcasts and more.
I have never met most of my mentors but their books, ideas and energy have given me incredible confidence.
The best way to overcome fear is through action. At a certain point you have to stop reading about investing and get in the game.
If you have read all our guides to investing, watched JL Collins' google talk and more and are still paralysed then my advice to you is to just START. Take £100 or $100 and invest it in a tax advantaged account (SIPP or ISA in the UK) into a broad based index fund like the Vanguard FTSE Global All Cap Index fund.
At a certain point you have to stop reading and start playing.
You can't logic your way out of an emotional problem
I was chatting to my friend. He told me he wanted to retire and travel the world. After hours of intense discussions, logically proving that he could retire now, showing him the 4% guideline, the data and charts, he told me that he couldn't retire yet because if he went travelling he might not have enough to cover airport meals as they are really expensive.
I almost lost my shit. We ended the conversation there. I left feeling perplexed. Why couldn't he see the logic of what I was explaining?
It was only upon reflection and time that I realised that he was scared of quitting his job and no matter what logic I showed him, he was never going to do it because he was afraid.
He was not coming from a place of logic. He was coming from a place of emotion and fear. Logic can't beat fear. I should know, I have tried for years to defeat people's fear with logic.
That is why this article is light on logic. I could have spent the whole article showing you the proof that the stock market goes up over the long term, that the guy that wrote the 4% rule is now saying it could be as high as 5 or 6% and that you are safe investing if you buy and hold index funds for the long term.
I would have wasted my time and yours. For most of you that are scared of investing this is not a logical thing. If you have read our guide to investing, learnt about investing and know what to do but haven't done it yet; it isn't logic you need.
You need to tackle your fear. Stop trying to logic your way out. Take a moment to define your fears, see if they really are real and then take action.
"Inaction breeds doubt and fear. Action breeds confidence and courage. If you want to conquer fear, do not sit home and think about it. Go out and get busy." --Dale Carnegie
Your way out of this is through action. Find someone who is FI and talk to them; run a mini-experiment and invest your first £100 in a SIPP or sign up to the next Rebel Finance School
Katie and I are not financial advisors. We share our own experience to try to help you to take control of your financial future but we are not trained advisors. The content of this article and the rest of my site is our opinion only. It is not advice. Please read our full disclaimer here.