Investing in the stock market is a key part of building wealth and saving for retirement. Despite that, investing can be deeply emotional, as the stock market is often driven by fear.
This same fear can keep Americans from investing, potentially creating long-term problems. Fear often stems from a lack of understanding. Nearly 40% of Americans don’t invest in the stock market due to a lack of understanding, according to the Federal Reserve Bank of Philadelphia.
Here are five key signs you’re letting fear hold you back from investing wisely.
You’re Sitting on Too Much Cash
Maintaining a fully funded emergency fund is essential to sound money management. Although there’s an argument for whether you should begin investing before sufficiently funding your emergency fund, sitting on too much cash is a sign you’re letting fear hold you back.
It’s understandable to feel secure about holding all cash, but it can be detrimental. Thanks to inflation, cash loses value every year it’s not invested. Shifting a small portion of a cash position into a broad-based index fund or investing in your 401(k) account can be a good way to balance having sufficient savings while also taking advantage of market gains.
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You Believe You Need a Lot of Money To Start
Fear can lead us to make decisions based on outdated assumptions. For example, it’s easy to believe you need a lot of money to invest. Yes, more money is better, but that doesn’t mean that limited funds should hold you back.
Many online brokerages allow you to open accounts today and begin investing. According to a BlackRock report, 54% of low to moderate-income Americans are investing in stocks. Fortunately, there’s a wealth of options to invest with little money.
Apps like Robinhood let investors start small by buying fractional shares of stock, or you can use a more established platform like Fidelity with no minimum balance. Ultimately, it’s time in the market that matters, not the amount you start with.
You Panic During Market Declines
Fear often leads the market, which is understandable given the concern of losing a significant portion of your portfolio in a few days. Acting out of fear can actually have the opposite effect, costing you dearly in terms of gains.
The steep pullback between March and April 2025, caused by fear over President Donald Trump’s tariffs, is a good example. Markets dropped by at least 10% and fear was abounding. Stocks largely returned in short order.
Fear is a leading destroyer of wealth, according to Suze Orman. Giving in to that panic during downturns can seriously hinder long-term goals.
You Wait for the ‘Perfect Time’ To Invest
There’s no such thing as the “perfect time” to invest. It’s easy to believe that waiting until after an election or when the economy improves will be the best time to invest.
In reality, this is fear-driven decision-making that can sacrifice returns. Timing the market is near impossible, per Charles Schwab. Having time in the market is far better than trying to time the market for the right time to purchase.
You Don’t Understand Your Risk Tolerance
Risk is an inherent part of the investing process. There’s no way around it, but it’s not uncommon for people to hold back from investing because they aren’t sure how much risk they can handle. Lack of clarity can make the stock market feel daunting and hold investors back from taking action.
Knowing your appetite for risk is important as it can guide your investing decisions, according to FINRA. Determining your risk tolerance isn’t difficult, as your timeline, goals, needs and personality largely define it. Some brokerages offer free calculators to help you determine your tolerance for risk.
Fear is understandable when it comes to investing. Rather than let it hold you back, educate yourself and start investing with a small amount to build confidence.
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This article originally appeared on GOBankingRates.com: 5 Key Signs You’re Letting Fear Hold You Back From Investing Wisely