There are quite a few studies out there that show women and men have pretty much the same underlying mental ability when it comes to math. And since finance uses math, we should also find little difference between men and women when it comes to (at least theoretically) feeling comfortable with investing.
And yet so many women are put off by the world of finance and financial markets. Even those with a good handle on day-to-day money management, like paying bills and dealing with credit cards, are fearful of making their own investment decisions.
The price of being afraid to invest
There are a lot of people making money in the stock market and in other types of investments. And there are many others sitting on the sidelines, letting their money earn next to nothing in savings accounts.
Until you run the numbers, you don’t really understand how this can add up. And added to that, you have the need to keep ahead of inflation. Even if inflation is low, earning almost nothing eats into your money. You want to manage your money in a way that actually helps it grow ahead of inflation.
Interest vs inflation example:
For the last 12 months, the average US inflation rate has been over 2%. But a major bank savings account pays only about .01% per year. That means if you deposit $10,000 in that savings account, by the end of the year you’ll have earned one whole dollar. But your money will lose over $200 in real buying power to inflation!
I want you to read that last paragraph again to really let that sink in. Bank savings account rates are horrible. And while online banks have better rates, their rates still don’t beat inflation.
Imagine the effect of that over many years on your hard-earned money. Not a pretty picture. And that’s why it pays to learn enough about investing to understand how markets work — and how you can make them work for you.
Putting your money decisions in someone else’s hands
Fear often leads to paralysis or simply putting things off until some future date that often never comes. And there your money still sits in a bank account earning next to nothing.
So, finally inspired to take action, many people decide that an expert is the best person to handle their money. Of course, you’re trusting a person who has to make a living to recommend where you should invest your money. While there are many good brokers, they still need to pay their bills.
I hope I don’t shock you, but many professionals advise that you invest in things that make THEM money. And that comes out of the very money you are trusting them to invest for you. It’s all legal, but you need to know that you aren’t always getting the best advice to maximize YOUR money.
People who are afraid to invest often avoid learning about money and finance at all. The topic alone makes their eyes glaze over. So they cross their fingers and trust to the experts. And they all too often wind up not getting the most out of their hard-earned money.
Where does the fear of investing come from?
I’m sure if I asked 10 psychologists, I’d get at least 10 different answers. But basically, it would boil down to insecurities that we develop as children. It also probably relates to long-held feelings about what we deserve, competence in taking on new things, and good old self-worth. But I’m not a psychologist, so I leave it there.
Actually, I’m guessing that a large part of it may simply be fear of the unknown. Or what feels like the unknowable. But I assure you that as you slowly get familiar with the individual parts, one at a time, it will not feel so daunting. You may even come to like it. Or at least you may enjoy the feeling of taking control of something that once intimidated you.
The most important part to remember is the more you learn about these things, the more confidence you will have. You can apply that confidence to investing on your own. But it also comes in very handy when dealing with financial professionals. You learn what to ask and also when to say no.
When fear leads to bad decisions
If you invest in the stock market by way of individual stocks or stock funds, they are not a guaranteed return. Especially at any given point in time, since markets go up and they go down. But over time, even when the worst crises hit, they have steadily gone up. Fear shakes out the people who aren’t able to see that or don’t feel comfortable living through those times.
When the scary financial crisis of 2007 – 2008 hit, many people ran for cover by selling into the down market. But I held on to my investments and watched — and trusted they would return eventually. My investments are diversified enough in type (bonds, funds, and stocks) and in the areas of business they represent. I could wait.
Folks who sold had to buy back later at a higher point. But only the wisest traders can time these things perfectly. So those who panicked and sold into the downturn — and then bought back later — lost money. As for me, waiting it out worked. I more than made back any of the decline. Not that I’m earning amazing returns, but for me steady gains year in and year out are more than enough to make me smile.
A few more thoughts
I don’t want to make it seem like it’s just women who have this aversion to all things money and finance. I know plenty of men who feel this way, too. And so they hold their noses, make some choices, and then pretty much ignore the whole thing. A fear for all genders.
I have a male friend who would rather see his retirement money earn close to zero in FDIC-insured bank money market funds**. This way he knows he will not lose any of the original value of this money. For him, peace of mind is worth any potential extra gains.
Re-enter the villain inflation
But, of course, inflation is the enemy of low interest. So as the years go on, he is seeing pretty much the same amount in numbers, with tiny increases. Again for him, that’s ok. But the way inflation eats at your money’s value, this means less and less buying power as years pass.
And that “less and less” can really add up — into the tens of thousands of dollars and much more. For me, that makes it worthwhile for anyone with this problem to face the fear. Knowledge is power. Investment knowledge is both power and a sweeter retirement. 🙂
**NOTE: Not all money market funds are insured. Bank money market accounts should be insured. Funds you buy from a broker are usually not insured. Be sure to ask.
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