Why are we afraid of investments?

Why are we afraid of investments? I meet a lot of young people who are afraid of investments. First of all, we ask ourselves: are we afraid of investments? In order to be fully aware of the truth of the answer we are giving, we also ask ourselves what I feel when I think about multiplying money? What thought goes through my mind? Is it the thought: can I lose my money?

Why are we afraid of investments?

From the effort we put in. In order to earn money, we have to work. We work around 8 hours a day, 5-6 days out of 7. We spend most of our time with work; each one with the job they have and no matter how much they enjoy their activity, they also have other goals, activities, such as their passions, spending time with family and friends.

From unpleasant experiences of losing money, either in unprofitable investments or by trusting various people who promised big profits. Unprofitable investments have a general characteristic: they promise big profits in a short time.

From past experiences, personal ones as well as those of our loved ones. If our parents, closest relatives or friends lost money, when investing them we will be so circumspect and reluctant that we will not decide to invest for “it does not happen to us”. This fear comes from the instinct of preservation. Loss generates suffering, and we want to remove suffering from our lives and be calm and happy.

Fear also comes from the type of financial personality. There are people focused on security, who need to have months of expenses set aside in case something happens to them and/or their income and who cannot stand the idea of ​​market fluctuations, although they favor their profit.

How does this period affect the economy and how can you save/invest?

This period, like any other recessionary period, produces an economic imbalance, with an impact on both the macro and micro levels (individual financial situation). Everything that happens in the economy is reflected in the level of personal earnings, spending, savings and investments.

Recessions are cyclical and affect several areas that lead to the general imbalance. No one knows where the next recession will hit and in what form it will come.

The current period is one that has affected people’s health, but it has also endangered the economy by stopping several areas of activity; especially the HoReCa field. Like any other recessionary period, there have also been areas that have now prospered: health, trade and I.T.

What is the difference between recession and economic crisis?

A recession is an economic imbalance characterized by a decline in production, reduced investment, and a temporary stagnation of business. It is a period of decline in economic activity and a temporary decrease in economic activity in a country.

An economic crisis is characterized by a period of stagnation, recession, and inflation, all caused by a complex set of factors.

How do economic imbalances impact the individual financial situation?

A situation of imbalance, manifested at the economic level, is reflected on people through a decrease or loss of income and an increase in the price of basic expenses (food, electricity, transportation). These two aspects influence people’s level of saving. A decrease in income will determine a decrease or even the impossibility of saving, as well as investing.

Investment risk and the fear of losing money

In the financial market there are goods, such as: gold, real estate, stocks, bonds, government securities that have a price to be purchased. A price that fluctuates depending on the period. Thus, the price increases or decreases and you can buy at an advantageous price, respectively a low price and you can sell at a reduced price and the investment made is a profitable one. But you can buy when the price is high and sell when the price drops, which is not a good investment and you lose.

The principle in investing is: buy when the price is low and sell when the price is high. When the price is low you buy because you will buy much more. With the same money you buy more, being cheap.

Referring to the investment through a fund with 150 lei invested (you don’t need a lot of money to invest) in January, 5.08 fund units could be purchased. The market was up. The price was high. With 150 lei invested during the period of decline, (March for example) 6.25 fund units could be purchased. The 15% decrease in the price determined the purchase of more than 1 fund unit. Accumulating more now, we sell, later, after the increase in the price of the fund unit (VUAN), more units, which determines a profit of the account by several percents or tens of percents.

Why are we afraid of investments? Fundamentals of investment psychology

We act for two reasons: out of fear of losing and out of the desire to win. Out of the desire to win there is the risk of buying a lot. I have a lot of money and I buy now, I make an investment. Ok. It’s just that the market is still falling, it doesn’t rise immediately. The increase is over time. And as the price falls, the value of the entire investment decreases (for the moment) out of fear of losing much more, everything is sold and thus money has been lost. After a while, that asset costs more. But what’s the use now, because the assets owned were sold at a low price. The decision not to invest comes from the fear of the previously mentioned scenario happening.

In order not to lose, but rather to earn money from investments, it is necessary to:

• wait for the price of the asset to increase, more than from the moment of purchase;
• invest little and constantly to catch every fluctuation in the market;
• manage our emotions, especially the fear of losing, but also the desire to win so as not to act wrongly, namely to buy an asset that has no value, that will not appreciate over time or an asset from a market that is too volatile;
• set a goal on a long horizon, to be motivated to be patient and to record a good gain.

More about the criteria for choosing an investment can be found here: https://mrfinance.ro/investitii/

Analyze your financial situation! What do you want to achieve and what motivates you to achieve it? What you want to do requires a large sum of money? Then, it would be appropriate to invest, but how? Balanced, analyzing the financial market, taking care of big and quick gains, talk to a specialist and be patient, read about investments so that the emotional sphere no longer dictates everything, but is also the rational area that helps you make the decision and keep it. I invite you to discuss what you can do to keep you and your money safe. https://www.e-learning.psihologiabanilor.ro/consultanta-financiara/

Success in becoming aware of money, emotions and your financial decisions!