• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

The College Investor

Student Loans, Investing, Building Wealth

  • About
  • Podcast
  • Research
  • Contact
  • Save For College
      • How To Start

      • How To Save For College
      • How To Pay For College
      • What Is the Average Cost of College?
      • What Is A 529 Plan and Where to Open One in Your State
      • How Much Should You Have In A 529 Plan By Age
      • How To Use A 529 Plan For Private Elementary And High School
      • What Are Qualified Expenses For A 529 Plan (And What Doesn’t Count)?
      • The Best Brokers To Open A 529 Plan
      • Tools + Accounts

      • 529 Plans: The Ultimate College Savings Plan
      • 529 Plan Contribution Limits
      • Prepaid Tuition Plans | What To Know
      • Understanding And Using 529A ABLE Accounts
      • Using A Roth IRA To Save And Pay For College
      • FAFSA Deadlines for Financial Aid
      • CollegeBacker Review
      • Upromise Review
      • UNest Review
      • Other Options

      • Student Loan And Financial Aid Programs By State
      • The Guide To Military And VA Education Benefits
      • How To Fill Out The FAFSA
      • How To Find College Scholarships
      • The Best College Scholarship Search Websites
      • How To Find Grants To Pay For College
      • Pell Grants: What They Are And How To Qualify
      • Understanding Federal Work-Study
      • How To Use A 529 Plan If Your Child Doesn’t Go To College
  • Student Loans
      • Borrowing

        • How Student Loans Work
        • How To Apply For A Student Loan
        • Best Student Loans And Rates In January 2023
        • 10 Best Private Student Loans Of January 2023
        • Best Student Loans To Pay For Graduate School
        • Best Student Loans To Pay For Medical School
        • Parent Loans To Pay For College
        • No-Cosigner Student Loan Options
        • Guide To Income Sharing Agreements (ISAs)
        • Best International Student Loans
      • Get Out Of Debt

        • Best Student Loan Refinance Companies In January 2023
        • Best Student Loan Repayment Plans
        • Best Student Loan Refinancing Bonuses And Promotional Offers Of January 2023
        • Student Loan Forgiveness Programs (The Complete List)
        • The Full List Of Student Loan Forgiveness Programs By State
        • Public Service Loan Forgiveness (PSLF)
        • Top Student Loan Scams
        • Average Student Loan Monthly Payment
        • Average Student Loan Debt By Year
      • Reviews

        • Credible Review
        • Splash Review
        • Ascent Review
        • Citizens Bank Review
        • Commonbond Review
        • Earnest Review
        • ELFI Review
        • Laurel Road Review
        • LendKey Review
        • SoFi Review
  • Investing
      • How To Start

        • How To Start Investing in High School
        • How To Start Investing In College
        • How To Start Investing In Your Twenties For 22 – 29 Year Olds
        • How To Start Investing In Your 30s For 30 – 39 Year Olds
        • How To Start Investing With $100 Or Less
        • How To Give Kids The Gift Of Stock
        • What Is Dividend Growth Investing
        • IRA Rollover Chart
      • Tools + Accounts

        • Best Online Stock Brokers
        • The Best Traditional And Roth IRA Accounts
        • The Best Robo-Advisors
        • The Best Investing Apps
        • The Best Places to Trade Options
        • The Best Places To Open A Health Savings Account
        • The Best Solo 401k Providers
        • The Best Self-Directed IRA Providers Of 2023
        • Best Cryptocurrency Exchanges
      • Reviews

        • Vanguard Review
        • Fidelity Review 2023
        • M1 Finance Review
        • TD Ameritrade Review 2023
        • Charles Schwab Review
        • Robinhood Review
        • Webull Review
        • Betterment Review 2023
        • Wealthfront Review
  • Earn More Money
      • Extra Income

        • 20 Best Side Hustles You Can Start Earning With In 2023
        • 53 Side Hustle Ideas To Make Money Fast
        • 100 Ways To Make Money In College
        • 80 Ways To Make Money From Home In 2023
        • 5 Quick Money Making Ideas (That Take Less Than 1 Hour)
        • 10 Interesting Ways You Can Make Money Driving
        • High-Paying Side Gigs That Earn $1,000 or More Per Month
        • The 10 Best Money-Making Apps
        • Paid Surveys: Earn Money For Giving Your Opinion Online
        • 10 Crazy Ways To Make $10,000 You’ve Never Heard Of
      • Build Wealth

        • 40 Passive Income Ideas You Can Use To Build Wealth In 2023
        • 3 Ways To Make $50,000 Per Year Without Working With Passive Income
        • How To Become A Real Estate Investor With Just $500
        • 15 Best Online Business Ideas
        • Residual Income: 7 Super Smart Ways to Build It
        • The Most Common Multiple Income Streams
        • How To Become A Real Estate Mogul With Only $10,000
      • Reviews

        • Fundrise Review
        • RealtyMogul Review
        • FarmTogether Review
        • AcreTrader Review
        • Swagbucks Review
        • Survey Junkie Review
        • TopCashback Review
        • DoorDash Review
  • Personal Finance
      • Banking

        • 10 Best High Yield Savings Accounts Of January 2023
        • 10 Best Money Market Accounts Of January 2023
        • 10 Best Free Checking Accounts In January 2023
        • Best Bank CD Rates Of January 2023
        • 10 Best Business Checking Accounts In February 2023
        • Best Online Banks Of January 2023
        • Best Credit Unions Nationwide Of January 2023
        • Best College Student Checking Accounts Of January 2023
      • Insurance

        • Best Life Insurance Companies
        • Renters Insurance
        • Car Insurance
        • Pet Insurance
        • Umbrella Insurance
        • Disability Insurance
        • Tuition Insurance
        • Travel Insurance
      • Credit Tools

        • Best Budgeting Apps
        • Cash Advance Apps
        • How To Get A Free Credit Score Report
        • Best Credit Monitoring Services For 2023
        • Debt Settlement: Inside The Secret World
        • Credit Repair Explained: Should You Pay For Help?
        • Best Personal Loan Companies And Lenders
        • Online Loan Companies To Borrow From Home
      • Tax

        • Best Tax Software
        • Free Tax Software
        • IRS Tax Refund Calendar
        • Common IRS Questions and Errors
        • Federal Tax Brackets
        • Capital Gains Tax Brackets
        • 401k Contribution Limits
        • IRA Contribution Limits
        • HSA Contribution Limits
  • Forum
  • Search
Home » Investing » Stocks » Overcoming The Fear Of Losing Money In The Stock Market

Overcoming The Fear Of Losing Money In The Stock Market

Updated: June 24, 2021 By Robert Farrington

Tweet61
Share49
Share6
Pin203
Email
Print

At The College Investor, we want to help you navigate your finances. To do this, many or all of the products featured here may be from our partners. This doesn’t influence our evaluations or reviews. Our opinions are our own. Any investing information provided on this page is for educational purposes only. The College Investor does not offer investment advisor or brokerage services, nor does it recommend buying or selling particular stocks, securities, or other investments. Learn more here.Advertiser Disclosure

There are thousands of financial products and services out there, and we believe in helping you understand which is best for you, how it works, and will it actually help you achieve your financial goals. We're proud of our content and guidance, and the information we provide is objective, independent, and free.

But we do have to make money to pay our team and keep this website running! Our partners compensate us. TheCollegeInvestor.com has an advertising relationship with some or all of the offers included on this page, which may impact how, where, and in what order products and services may appear. The College Investor does not include all companies or offers available in the marketplace. And our partners can never pay us to guarantee favorable reviews (or even pay for a review of their product to begin with).

For more information and a complete list of our advertising partners, please check out our full Advertising Disclosure. TheCollegeInvestor.com strives to keep its information accurate and up to date. The information in our reviews could be different from what you find when visiting a financial institution, service provider or a specific product's website. All products and services are presented without warranty.

Overcoming Money FearsIt’s a scientific fact that people will do irrational things to avoid loss. And one of the biggest fears people hold to is the fear of losing money.

In fact, studies have shown that the pain of losing is twice as strong as the joy of winning. So, losing $100 hurts twice as much as the same feeling you’d experience gaining $100.  Ouch.

However, science also shows that investing in the stock market is one of the best ways to build wealth over time. Keeping your money all in cash is actually riskier because you won’t be able to grow your wealth faster than inflation – meaning that your actual spending power will be less (i.e. you’ll feel poorer in retirement). But recent events (the stock market crash of 2008) have reignited a lot of fears around investing.

Let’s see if we can build some strategies to help overcome the fear of losing money in the stock market.

The Science Behind Fear

Fear is an incredibly personal experience. That’s why some people are afraid of flying while others fly every week. Or some people are afraid of heights and others work in skyscrapers.

But there is some science behind why people are afraid of things, including losing money. While there is still a lot of research to do around the subject, scientists understand what makes your body feel fear, and have begun to understand how each person experiences fear differently.

Fear is “learned” from three things: a past personal event, the experiences of family and friends, or a contagious “herd” experience.  When looking at the fear of say, spiders, you could have become fearful because you were bit by a spider at a young age, or you watched a horror movie involving spiders when you were young. Or, your family members could have brought you up with a fear of spiders because of their own fear of spiders – you just picked up on the fear and continued it.

The herd mentality is a little tougher to quantify, but it’s more along the lines of – since everybody else is afraid of spiders, I guess I am too. In the spider example, maybe you’ve been watching news reports on spiders that included interviews with others. Or you were in a room and others started screaming about a spider. These are examples of how you get a “herd fear“.

What you experience fear, you body kicks in some heavy duty hormones which are designed to save your life. First, you body is on constant alert for potential predators and fearful objects – it’s constantly comparing current experiences to past events and deciding if this is “good” or “bad”.  If it encounters a bad fear trigger, the first reaction is typically a freeze response – your body just stalls and waits. Meanwhile, it’s building up other chemicals to increase your ability to “fight or flight” – either to defend yourself or get you out of the situation. Then, if the fear trigger isn’t abating, your body will kick in adrenaline and either get you out of the situation or increase your ability to fight off the “attacker”.

Looking At The Fear Of Losing Money Specifically

The fear of losing money can come from all three of these triggers.

Personal Experience

You can have personally experienced a loss in the stock market. Maybe you had some money saved in your 401k, and you watched the value of it decline by 40-50% in 2008. Or maybe you’ve always been living paycheck to paycheck, so the thought of putting your money in an account and it not being there scares you since you fear not being able to pay the bills.

Family/Friends Experience

Maybe you inherited a fear of losing money from your family – maybe it was your parents who suffered large losses in their 401k in 2008 and then had to work longer to be able to retire. Or maybe you simply heard your parents discussing their money problems growing up and it left you worried about it.

Herd Mentality

Or maybe you picked up a fear of losing money from watching too much TV. Shows like Suze Orman, while providing advice, also highlight a lot of people who are struggling. Or even the local news each night – they only give a headline: the market dropped 84 points today – and you have no context about it beyond that. So your mind wanders and you worry.

How The Fear Of Losing Money Plays Out

Now that you understand the science of fear and how your body reacts, it makes sense that people do one of two things when it comes to money when they are fearful of losing it:

  1. They do nothing and avoid the subject
  2. They do too much and get into trouble

First (and most common), they do nothing. Since the fear of losing money triggers fear, and the body’s first reaction is to freezer, they get stuck frozen with money. They don’t want to take action. And since money doesn’t require any “fighting”, your body and mind simply get you safely away from the fear through flight. However, this prevents you from making money decisions and could also lead to future problems.

The second (and far less common approach), is to do too much. In this case, it’s typically someone who is investing, but is so afraid of losing money, that they are trading constantly to lock in small gains and avoid losses. However, in this situation, the person can also get into trouble because they are spending money to make trades (via commissions), and they aren’t letting their money grow over the long term (losing potential returns).

Setting Up Your Investments To Avoid Fear

Now that you understand the science behind the fear of losing money in the stock market, there are a few simple tricks that you can do to help you overcome these fears. These are also based in science, so let’s look at the science of overcoming fears and how it applies to money.

Key Steps To Overcoming Fear

If you want to overcome any fear, including the fear of losing money investing, you have to go through the following steps:

  1. Acknowledge it and try to define where it came from or how you “learned” it
  2. How does this fear affect you (i.e. you do nothing)
  3. Analyze every possible outcome of decisions you fear, including the worse case scenario – don’t be afraid to write it out
  4. Take control of your fear – confront it directly using loss aversion
  5. Understand that fear will always have a place in your life

Applying This To Money And Investing

First, you need to look at your fear and see where it came from. Maybe your parents or friends? Realize that your financial situation is not the same as their’s and it never will be. Plus, in money and finances, it’s highly unlikely that you will ever know their full story. Maybe they also made mistakes with money that you weren’t aware of? Maybe they did things they didn’t share? If your fear is based on others, ask yourself how much you really know about their money, spending, and investing?

The next step it to address how this fear affects you. For most, fear of losing money paralyzes, and you don’t invest. The solution to this is to automate and not look at your money. For example, you could start investing through an employer’s 401k plan. Simply setup the contributions to be automatically withdrawn from your paycheck, and don’t look at your 401k balance. By not having to make a decision, you’re making a decision to invest but you don’t have to worry so much about it.

Beyond automation, you can also define every outcome of investing. You could gain 5% or lose 5%. Your worst case scenario may be losing 90%.Write each situation down and see what it looks like for the money you have. Just knowing that can happen makes a big difference. If you want to automate this process, use a calculator like FireCalc, which shows you the probability of what will happen to your money over time.

Next, you can use loss aversion – which is a fancy term for making the pain of loss work to your advantage. Remember when we said pain hurts twice as much as gain? Well, that’s the premise. If you want to contribute to an IRA, you could setup weekly payments of $105 to max your contribution. If you confront your fear directly and start investing with the goal of investing each week, missing 1 week will be more painful to you than not investing. You mind changes your thought process on what hurts.

Finally, the last thing to remember is that you’ll always have fear in your life, and that’s okay. The important thing to remember is to control it so it doesn’t control you. This is even more important when it comes to investing and money, because it’s a scary thought to never invest and then be poor when you’re 65.

How do you feel when the market drops? Have you included these events in your financial plan?

Robert Farrington
Robert Farrington

Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.

He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.

He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.

Overcoming The Fear Of Losing Money In The Stock Market
Editorial Disclaimer: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, or other advertiser and have not been reviewed, approved or otherwise endorsed by any of these entities.
Comment Policy: We invite readers to respond with questions or comments. Comments may be held for moderation and are subject to approval. Comments are solely the opinions of their authors'. The responses in the comments below are not provided or commissioned by any advertiser. Responses have not been reviewed, approved or otherwise endorsed by any company. It is not anyone's responsibility to ensure all posts and/or questions are answered.
Subscribe
Connect with
I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree
Notify of

I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree

3 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments

Primary Sidebar

Robert Farrington will teach you how to get out of student loan debt and how to start investing.

Hi! My Name is

America's Millennial Money Expert

Welcome to The College Investor. We're here to help you escape student loan debt so you can start investing and building wealth for the future

Our expert guides, reviews, and more are designed to help you achieve your financial goals.

Want to learn more? See what's in my wallet.

As Featured In

Social Media

Popular Posts

Side Hustling

53 Side Hustle Ideas To Make Money Fast

Best Side Hustles

20 Best Side Hustles You Can Start Earning With In 2023

Crazy Ways To Make $10,000

10 Crazy Ways To Make $10,000 You’ve Never Heard Of

Make $50,000 Per Year

3 Ways To Make $50,000 Per Year Without Working With Passive Income

Student Loan Scams

Top Student Loan Scams

Net Worth of Millennials

Average Net Worth Of Millennials By Age

Ways To Get Student Loan Forgiveness

Student Loan Forgiveness Programs (The Complete List)

529 Plan By Age

How Much Should You Have In A 529 Plan By Age

Passive Income Ideas

40 Passive Income Ideas You Can Use To Build Wealth In 2023

Make Money From Home

80 Ways To Make Money From Home In 2023

Ultimate Guides

529 Plan Guide

529 Plans: The Ultimate Guide To College Savings Plans

Student Loans and Financial Aid By State

Student Loan And Financial Aid Programs By State

Student Loan Advice

The Definitive Guide To Student Loan Debt

Student Loan Forgiveness By State

The Full List Of Student Loan Forgiveness Programs By State

newretirement

How to Start Saving Now: The College Graduate’s Guide to Saving for Retirement

Latest Research

How much to file taxes

Tax Survey: How Much People Paid To File And The No.1 Tax Software They Used

Inflation survey

Side-Hustles To The Rescue: Survey Shows 86% Stressed About Money & Inflation

students choose to work survey

75% Of Students Would Still Choose To Work Even If They Didn’t Have To

Institutional Merit Grants

Who Gets Institutional Merit Grants At Private Colleges?

Resume Student Loan Payments

Survey: Even With Higher Expenses, Most Student Loan Borrowers Are Ready To Resume Payments

Footer

Who We Are

The College Investor is an independent, advertising-supported financial media publisher, focusing on news, product reviews, and comparisons.

Connect

  • Contact Us
  • Advertise
  • Press & Media

About

  • About
  • Our Team
  • Podcast
  • Editorial Guidelines
  • How We Make Money
  • Archives

Social

Copyright © 2023 · The College Investor · Privacy Policy ·Terms of Service · DO NOT Sell My Personal Information

wpDiscuz