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How to Get Over Your Fear of Investing

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When it comes to investing, millennials are a cautious group. In fact, nearly half think it’s too risky to invest, according to the BlackRock Global Investor Pulse Survey. Rather than buying stocks and bonds, 70 percent of adults ages 25 to 36 are clinging to cash assets.

Millennials don’t trust the markets because there’s still a hangover from the financial crisis of 2008-09, said Chad Smith, a certified financial planner with Financial Symmetry in Raleigh, N.C. “Some have called it Armageddon hypochondria,” he said. This means that they’re afraid to invest because there will be a repeat of the recession and market crash, which puts them far behind in saving for retirement.

But millennials aren’t the only ones shying away from stocks. Only 22 percent of Americans think stocks are the best long-term investment, according to a 2016 Gallup poll. If you’re trying to save for a comfortable retirement, though, avoiding stocks isn’t the best strategy. Click through to find out how to get over your fear of investing.

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Recognize the Risk of Not Investing

Investing in stocks might seem risky, but investing all of your money into seemingly safe investments such as money market accounts, certificates of deposit or even a basic savings account can put you at risk of not having enough for a comfortable retirement. That’s because the return on these investments has historically been lower over the long run.

“If you don’t invest in the market and position yourself to get better long-term performance, you really aren’t investing at all,” said Nick Vail, co-founder and financial advisor with Integrity Wealth Advisors in Indianapolis.

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Understand the Need to Outpace Inflation

Inflation means prices in the future will be higher than they are today. If you can't earn enough to match the inflation rate, you're effectively losing money. It's just one effect of inflation you need to watch out for.

In late September 2017, the inflation rate was 1.9 percent, but it has been closer to 3 percent historically. The best CD rates were slightly lower than the inflation rate, and savings rates were less than 1 percent.

“If you are putting the majority of your money in these types of accounts, you aren’t doing yourself any favors,” Vail said. “Your purchasing power in 15 years won’t be much better off, if any better, than it is today.”

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Don’t Let Recent Events Scare You

The most recent bear market, from 2007 to 2009, when both the Dow Jones industrial average and the Standard & Poor's 500 index fell more than 50 percent, might still be making plenty of would-be investors wary.

“Whenever you look at stock market returns, there is a tendency to look at the most recent events or time frames,” said Charles C. Scott, a financial advisor in Scottsdale, Ariz., and founder of Pelleton Capital Management. “So, if younger potential investors are looking at what’s happened in the last 10 or 15 years ... there isn’t much reason to be impressed.” But, over a long time frame, stocks outperform bonds and bonds outperform cash, he added.

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Acknowledge Short-Term Market Risks

Of course, if you’re investing for the short term, you should be wary of losses. “If it's money you need in a couple of years, by all means, the fear is warranted,” said Joshua Wilson, chief investment officer at WorthPointe. But you shouldn’t let a recent market downturn scare you away from investing for the long term.

“The pain of not investing in the stock market will be much greater in the long run because of missed opportunities than the pain of stock market fluctuations in the near term,” Wilson said.

Check Out: 9 Safe Stocks for First-Time Investors

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Know That Time Is on Your Side

Consider the benefit of investing sooner rather than later. “Something you can never, ever get back is time,” said Chad Nehring, a certified financial planner with Conceptual Financial Advisors in Appleton, Wis. “Simply put, the longer you stay invested, generally the larger the investment will grow.”

For example, if starting at age 25 you invested $420 a month in a retirement savings account and earned 7 percent annually, you could save $1 million by age 65. If you waited until age 35, you’d have to invest $880 a month with a 7 percent return to have $1 million by retirement.

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Avoid Information Overload

It’s easy to be afraid of investing in stocks if you frequently tune into market news. “I work with millennial clients every day who express this fear for the markets, and I attribute some of that fear to the information overload we receive,” said Michael Cirelli, a financial adviser at SAI Financial Services in Warrenville, Ill.

Remember that if you’re investing for your retirement, you’re in it for the long term. So, don’t let what you hear about how the market is doing today scare you away from investing for your future, Cirelli said.

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Put Negative Market Noise in Perspective

Whenever Cirelli's clients express concern about news reports stating the markets are due for a large correction in the next few months, he asks them whether they plan on retiring in the next few months.

“While this may be somewhat of a rhetorical question, it usually drives home my point that what they hear day to day … is just market noise,” he said. “These networks are dedicated to financial news, and they need something to talk about every single day.”

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Invest Even When Facing an Uncertain Future

Liz Claman, a Fox Business Network Anchor, said the future is always uncertain. However, "If you wait to forge ahead until the coast is clear, you'll never move and you'll never get your financial act together," Claman said. "Besides, you can judge one thing about investing by looking to the past: Over time, since about 1919, the stock market has returned around 11 percent."

Making regular investments is always the thing to do. "When you plow a fixed amount, say $400 per month, into an index fund or high-quality companies with good management and a great product or service, over time, the benefits will be quite obvious," Claman said.

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Diversify Yourself for Protection

You can avoid some of the effects of market fluctuations by investing in a variety of stocks or mutual funds. “Having a diversified portfolio balances risk among lower- and higher-risk investments, giving you better odds of achieving higher long-term returns,” Smith said. “While it cannot avoid short-term losses completely, it will reduce concentration risk of having one or two stock holdings blow up your portfolio.”

Claman's diversifying strategy includes a mix of good-quality stocks that trade at a reasonable price, precious metals like gold and industrial metals like copper, Treasury bills and some cash, she said.

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Let the Pros Help You

If you’re afraid to invest because you fear picking the wrong investments, you can turn to a professional for help. Smith said that he had met with a 30-something who had let cash in his bank account build to more than $300,000 because he had lacked the confidence to pick the right investments. He turned to Smith for help because, as Smith said, “his fear had paralyzed his decision making and he finally realized he was never going to do it on his own.”

You can find a financial planner in your area by searching the website of the National Association of Personal Financial Advisors. You also can find an advisor through Guidevine.com, or check with the benefits department at work to see if your retirement plan provider offers investing advice services.

Find Out: How to Find a Certified Financial Planner

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Have a Strategy When Picking Stocks

Claman acknowledged that it takes some expertise to picks stocks. "Look for companies that have a competitive 'moat' around them," she said. "Warren Buffett loves stocks that are 'best in class' — No. 1 or 2 in their field. And Buffett also says never, ever overpay for a stock. Even if you adore the product or think the management is brilliant, don't fall in love with a stock. Keep your head and your principles on straight and you should come out a winner."

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Set It and Forget It

Robert R. Johnson, president and CEO of The American College of Financial Services, recommended a passive investing approach. “Studies have shown that investors who less actively monitor and trade in their retirement accounts perform better than those who do," Johnson said. "The best strategy for young people is to ‘set it and forget it.’”

In other words, they should make regular contributions to a low-cost index fund that tracks a market index such as the S&P 500 or target-date fund in a retirement account and stay the course. Don’t set and forget entirely, though. Increase contributions as your income rises to ensure that you're saving up to 20 percent of your wages annually, as experts recommend.

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Embrace the Fear

Does fear potentially make people better, more careful investors? According to Claman, fear is a healthy survival mechanism.

"There's even an index that tracks fear," she said. "The VIX, or 'volatility' index gives us an indication of fear or complacency in the market. History proves financial crises [and] sell-offs often follow times of extreme complacency and bullishness. You should always have a little fear in your heart when it comes to investing."

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John Csiszar contributed reporting to this article.