As we enter spooky season, it’s a time to explore the dark and confront our fears.
But ghosts and monsters aren’t the only things that can send a shiver down your spine at Halloween, and fear can dictate many of your decisions in life, including financial ones.
Whether it’s the fear of losing investment wealth, missing out on an opportunity, or making the wrong decision, financial worries may seem sensible, but they can often stop you from making progress.
Read on to discover three financial fears that could be holding you back from long-term growth.
1. Fear of volatility
Market volatility can strike fear into even the most experienced investors. Seeing the value of your portfolio fall in real time can tempt you to sell before things get any worse.
There’s a psychological reason behind this: research from University College London found that losing money activates the same areas of the brain associated with physical pain. Just as we instinctively try to avoid something that hurts, you may feel tempted to sell your holdings to escape the discomfort of watching your wealth lose value.
However, while selling might offer immediate relief from the fear instilled by a market decline, it can also mean missing out on the recovery that follows.
Research from Schroders examined some of the biggest market falls over the past century and found that investors who sold out during these periods often took far longer to recover their losses than those who remained invested.
For example, during the Wall Street Crash, investors who switched to cash after the market fell by 25% would not have recovered their losses until 1963. Conversely, those who held on would have been back to their previous position by early 1945.
There was a similar pattern during the 2008 financial crisis. According to the analysis, investors who sold after the initial 25% fall had still not made their money back by 2024. By contrast, those who stayed invested would have recovered their losses by around 2013.
Of course, past performance cannot guarantee what will happen in future market downturns. But history suggests that reacting fearfully to short-term market movements can come at a considerable cost. Resisting the urge to sell in a panic may give your investments a better chance of recovering over time.
2. Fear of missing out
Another common investment anxiety is the fear of missing out. This is when certain shares or sectors deliver impressive short-term returns, tempting many investors to jump on the bandwagon in the hope of achieving similar gains.
However, by the time an investment has attracted attention, its strongest period may already be behind it. And there is no guarantee that yesterday’s winners will continue to outperform.
Indeed, further research from Schroders shows just how unpredictable short-term performance can be. The study looked at US stocks between 2005 and 2022. It found that in 12 of those 18 years, not a single one of the 10 best-performing shares retained its place in the top 10 the following year.
The research also showed how difficult it is for companies to sustain standout returns over time, with an average of just 15 companies staying in the top 100 performers for two consecutive years.
So, rather than trying to identify the next big winner, it’s typically a better idea to focus on your long-term goals and aim for steady and consistent growth.
3. Fear of making the wrong decision
Sometimes, the fear of making the wrong investment decision can lead to analysis paralysis, which is where you become so worried about getting things wrong that you don’t act at all.
Spending too long weighing up every possibility can mean missing out on opportunities for growth. For example, money sitting in cash may not benefit from the potential returns and compound growth that investing over the long term can offer.
Trying to find the perfect moment to invest can be particularly tempting. You might wait for share prices to fall further before buying, or hold off until you feel more confident about the direction of the market. But predicting exactly when markets will rise or fall is notoriously difficult, even for experienced investors.
Meanwhile, constantly checking market updates, comparing conflicting opinions, and searching for more information can leave you feeling less confident rather than helping you reach a decision.
So, rather than trying to make the perfect investment decision, it’s often more helpful to focus on making a well-informed one.
Setting clear financial goals, choosing investments that align with your attitude to risk, and sticking to a long-term plan can help you avoid overthinking every move.
Get in touch
Our team of independent financial advisers in Lewes is here to support you in overcoming your financial fears.
To find out more, please get in touch by emailing us at financial@barwells-wealth.co.uk or by phone on 01273 086 311.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Production