Can my fear of investing derail my retirement plans? Yes, here are three such problems

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While investing can finance your post-employement days, there are certain fears that can derail your retirement.
Image Credit: Unsplash/Elisa Ventur

Dubai: Nobody likes it when their finances aren’t secure but often times this is experienced when investing in markets. Even amid warnings of market volatility and uncertainty, veterans advise investors, especially those with long-term financial goals, to continue and stay invested for maximum profits.

While it may seem that putting your money in a savings account is an easier option, it probably won’t grow much over time, and global inflation and account fees can eat away at the value of your money. Investing, on the other hand, offers a way to grow your savings for some of life’s biggest milestones.

“Investing can play a crucial part in securing your goals. It may provide the boost to your savings that allows you to fulfill financial goals like starting a business or even purchasing a home. It could also mean being able finance your retirement later in life,” said Brody Dunn, a UAE-based investment manager.

“Once you get started, you’ll have a better sense of yourself as an investor. How much risk are you willing to take? Are you interested in specific sectors, geographic regions or mandates? How interested are you in the process, and how much time do you want to spend on it?”

Buying stocks when the market is rising consistently is often described by investors as climbing a “wall of worry.” The point being that even during good times, investors worry about when it will drop next. When such worries keep you from investing in your retirement, you run the risk of derailing your future.

Investing may provide the boost to your savings that allows you to fulfill financial goals like starting a business or even purchasing a home

– Brody Dunn, a UAE-based investment manager

Let’s take a closer look at three common investing-related concerns that could keep you from saving enough for your later years, along with some ideas for moving forward despite your fears.

1. Fear of investing in general

“Of all the aspects of managing money, investing is the one that frightens people the most. At first glance, that’s understandable. Just look at what happened during the Great Recession. From October 2007 until March 2009, stock markets worldwide fell by more than 50 per cent,” added Dunn.

“Think about that. If you had Dh100,000 invested at the beginning of that stretch, you ended it with less than Dh50,000. That experience was enough to drive some people out of the market completely, and keep them out.”

How can you conquer your fear of investing? One way is to adopt the mindset of a long-term investor, not a short-term trader, opined Zubair Shakeel, another UAE-based investment manager.

“Investors understand two important facts. First, the market doesn’t move in a straight, smooth path. They expect to experience many ups and downs. Second, the longer you stay invested, the better your chances of making money.

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How can you conquer your fear of investing?

“For example, according to recent analysis, of all the one-year stock market investment holding periods from 1926 to 2016, 26 per cent showed a loss. Widen your perspective to all five-year periods, and just 14 per cent showed a loss. And when you stretch your view to 15-year periods, none showed a loss.”

How would a long-term perspective have helped an investor who put money in the market at the beginning of 2007? Someone who started that year with Dh100,000, held on through the downturn, and kept holding on, would have ended 2016 with nearly Dh200,000.

2. Fear of investing in retirement funds

It’s commonly observed to see critics often complaining of high fees when it comes to the most widely-used retirement funds worldwide, and they say it’s unreasonable to expect participants to know how much to contribute or what to invest in.

“It’s true that some plans are filled with excessively high-cost investment options. However, the more recent trend has been for plans to add low-cost index funds. To figure out how much to contribute, use one of the many free online tools that are available,” said Shakeel.

“Estimating how much you should be saving in order to be adequately prepared for retirement will help make the distant goal of retirement more tangible and may motivate you to contribute more than you are now.”

Estimating how much you should be saving in order to be adequately prepared for retirement will help make the distant goal of retirement more tangible

– Zubair Shakeel, another UAE-based investment manager

As for deciding what to invest in, many retirement plan providers offer target-date funds, which make investing very simple by just choose the fund named for the year closest to the year of your intended retirement date.

“Such funds are designed with the mix of stocks and bonds the fund company has deemed appropriate for someone your age. They automatically adjust that mix over time, becoming more conservatively invested as you near retirement age,” added Dunn.

3. Fear of missing out (FOMO)

Does it seem like everyone around you is making money by investing in something you’re not quite sure you understand? For instance, today’s investment craze is cryptocurrencies and every day a new story about investors who doubled their money keep coming up. But could you easily explain the concept?

“Investing in something you don’t understand because of the ‘fear of missing out’ has great potential to do more harm than good. What to do instead? Stay in your own investment lane and focus on putting your money in concepts you are familiar with,” Dunn advised.

“Because data shows those who ignore hyped-up trends have higher net worth, regardless of their age, income, and percentage of wealth that they inherited. Building wealth means ignoring what others are doing, which may be more challenging today than in the 1990s.”

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It’s commonly observed to see critics often complaining of high fees when it comes to the most widely-used retirement funds worldwide.

So, just because everyone seems to be piling into a particular investment doesn’t mean you have to. At very least, take the time to understand what you’re investing in and why.

“Because the markets are unpredictable and can be volatile in the short-run, most investors feel some fear, at least occasionally. But that doesn’t mean you have to let it keep you from investing for your later years,” added Dunn.

Bottom line?

It’s likely your investment won’t change much from day to day or even month to month. But even if it does, veteran investors caution that you should try not to let volatility scare you. It’s normal for market cycles (market growth and decline) to fluctuate and there is no one-size-fits-all approach.

Individual time horizons (investing timeline, or how long you plan to hold an asset before selling it) differ and may not align with market cycles, but it’s important to remember that time in the market is more important than timing the market.

Avoid moving your money around every time there’s a change in the market. This makes it more likely you will end up buying when prices are high and selling when your investment is worth less. Remember that any loss is only on paper – until you sell.

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