Is fear hurting your finances?

Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest. 

Managing investment risk

That is not to say that investing is without risk. There is always a risk of losing money. But there are also ways of managing that risk.

Diversification is one of the best ways to minimise your risk. This means holding a range of investment types (stocks, bonds, property, gold, etc) and getting exposure to different geographical regions and companies of different sectors and sizes.

Taking a long-term view is also crucial. Stock markets can tumble but staying invested means you give them the chance to recover.

The chart below shows the best and worst possible annualised returns investors in the S&P 500 (a proxy for the US stock market) would have seen over different time frames between January 1983 and May 2024.

Those who only stayed invested for one year could have seen either big gains or big losses. But, as the holding period increased, the worst-case scenario improved significantly and over a 20-year period even the worst-case scenario would have made investors money. Again, it’s important to remember that past performance is no guarantee.

Our Be Invested report found a big juxtaposition between the long-term nature of people’s financial goals and their tendency to prefer cash.

Overcoming psychological barriers

It’s completely natural to fear losing hard-earned savings. But, as the first chart shows, holding cash is not risk-free. It’s just that the losses wrought on your cash by inflation are hard to see.  

What’s more, interest rates are expected to continue falling - meaning that cash returns are likely to drop further.

You should only ever take as much risk as makes sense for you financially and that you are comfortable with. But if you do have ample savings, no “bad” debts, a long-term goal you’re saving for, and fears around market volatility are still holding you back from investing, there are some things you can do to temper those concerns.

1. Engage first with your pension

Many people who don’t feel confident investing will in fact already be an investor (via their pensions). It might help to engage first with your pension, check its performance, and realise that you are already experiencing the ups and downs that stock markets bring.

2. Remember that cash is not risk-free

Risk warnings are slapped all over investments - but there are no warnings when opening a cash savings account about the risks of losing money to inflation (something we suggest in our Be Invested report). Bearing this in mind can help when weighing up the risks and benefits of cash versus investments.

3. Read up on investments

People who are more clued up about stock markets are generally more comfortable with taking on financial risk. Reading articles or watching videos on the subject could help to boost confidence. If you’re new to investing check out our investing for beginners section or for more in-depth analysis our Markets and Insights hub.

4. Stay calm during market wobbles

Remember: you haven’t lost any money until you sell up. Focusing on your long-term goal could help when convincing yourself to stick out a market wobble.

For more information, read our full Be Invested report here.

• Open a Fidelity Stocks and Shares ISA 
• Open a Fidelity Self-Invested Personal Pension (SIPP) 
• Read: Principles for good investing

^{Past performance is not a reliable indicator of future returns}

^{Source: Refinitiv, total returns in local currency from 30.6.20 to 30.6.25. Excludes initial charge.}