Stock Market Fears? 8 Reasons Not to Fear the Stock Market

People shy away from the stock market for many reasons. Some believe they don’t have enough funds, while others may have heard stories of people losing money in stocks.

Fear of stock market crash is another reason. Will a stock market crash happen soon, and will I lose all my money? Perhaps another of the main reasons people don’t invest in the stock market is that returns aren’t guaranteed.

Stock market fears are normal because we’re generally loss averse. However, there’s no need to be scared. Despite the risks, investing in stocks need not be a reckless journey. You can manage your risk in different ways to maximize returns on your investments.

If you’re still on the fence about investing in stocks, we’ve listed some great reasons to let go of all your stock market fears.

What is Stock Market Fear and Greed Index?

CNNMoney developed the fear and greed index to measure two of the primary emotions that influence how much investors are willing to pay for stocks. This is measured daily, weekly, monthly, and yearly.^[1]

In theory, the stock market fear and greed index can gauge if the stock market is fairly priced. Excessive fear drives down share prices, while too much greed tends to drive up the prices.

What is Panic Buying in the Stock Market?

Panic buying or selling in the stock market refers to the rapid trading of stocks or bonds in high volume in anticipation of sharply rising or falling prices, usually after unexpected news is released.^[2]

Stock market panics are usually caused by news events that affect investor confidence in a single stock or industry. They’re often problematic because investors act based on fear and emotions instead of performing a reasoned analysis or evaluating the fundamentals.^[3]

8 Reasons to Let Go of Your Stock Market Fears

Yes, investing in the stock market comes with risks. However, stocks can be a valuable component of your investment portfolio. Here are reasons to overcome your stock market fears and start investing in stocks.

1. You Can Earn Higher Returns

The main reason you want to invest in stocks is the higher potential return compared to treasury bonds or time deposits. When you overcome your stock market fears and learn its ins and outs, you’ll find that it offers the best chance to achieve your financial goals, especially when you create a winning stock portfolio.

Stocks outperform other asset classes because they compound the value of your investment by reinvesting the profits to generate more profit. Furthermore, you can also use the dividends you receive to buy more shares, increasing their overall value.

2. You’re Diversifying Your Investment Portfolio

Investors usually have a diverse investment portfolio, so investing in stocks isn’t an end-all, be-all option. Just because a person advocates stocks doesn’t mean they have 100% of their assets in stocks. Investors can have multiple assets across various industries, like index funds, stocks, bonds, and real estate.

Diversification means having multiple assets to minimize risk. If you diversify your portfolio, you shouldn't be afraid of the stock market. Less risky investments can provide a cushion for potential losses for higher-risk investments.

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3. You Can Protect Your Wealth from Inflation

Aside from their potentially higher returns, stocks are an excellent way to hedge against inflation. Having a well-diversified portfolio of bonds and traditional stocks can provide you with some protection because it has historically tended to grow even in high inflation.

4. You Can Earn Passive Income Through Stocks

Companies listed on the Philippine Stock Exchange (PSE), especially blue-chip companies,^[4] pay dividends to investors once or twice a year. Passive income from dividends can help supplement your monthly income or contribute to your savings, emergency, or retirement fund.

5. It’s a Risk, But It’s Not Gambling

Investing in stocks is unlike gambling, where you leave everything to chance. When you invest, you pick stocks you’re familiar with because you use the company’s products or services or know its track record and want to invest in its plans or management.

The stock market is scary only if you don’t do your homework to learn about the companies you’re interested in investing in. Look at their financial reports, plans, and projects for the future.

6. You Don’t Need to Invest a Lot

As with anything, take baby steps and get the hang of it before you jump in. Moreover, don’t use your savings or emergency funds for investing purposes.

According to Atty. Roel Refran, Chief Operating Officer of the PSE, a good rule of thumb is to set aside at least 10% of your income for investing. Depending on your circumstance, 50% would probably be enough if you’re single, and 10% would be more realistic if you already have a family.

Start investing with a small amount first. Then once you see your money grow, you’ll feel more confident in investing in stocks.

7. You Can Continuously Educate Yourself About Stocks

You can use a wealth of information to pick the stock to buy. For example, you can study financial reports or research the company’s plans for growth. Expand your knowledge to understand the dynamics of the stock market, so you know the good time to buy or sell.

Educate yourself about the stock market and how it works by using these learning tools from the Philippine Stock Exchange to help you become a better stock investor:

Seminars and Webinars

The PSE conducts free online and offline events that cover various topics, such as stock market basics, fundamental analysis, and technical analysis.

To stay up-to-date on these events, diligently check the following PSE websites:

PSE Academy^[5] – A comprehensive online platform for investors and market practitioners that includes learning materials (readings and videos), events and exam schedules, and investment calculators, just to name a few.
PSE EDGE^[6] – The official disclosure portal of the PSE, which also has a mobile app available for Android and iOS devices. Information in the app includes a list of all PSE companies according to the sector, stock data (open, closing, high, and low prices), and corporate disclosures such as financial reports and dividend declarations.

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8. You Can Enjoy Privileges as a Stockholder

When you invest in a company and buy its stock, you become a part-owner of the corporation.

“That part-ownership privilege allows you to earn two ways―through dividend income and price appreciation,” Atty. Refran explains.

“If there’s a dividend declaration, you get to participate depending on how many shares you have. If the price increases compared to when you bought it, that’s another upside potential.”

If a company declares dividends, expect to receive a sum of money for being a shareholder of the company. As for price appreciation, if you bought a stock at ₱1 a share and, a year later, sold it at ₱2 a share, then you would have a 100% return on your investment. Those are the two ways to make money in the stock market.

Companies that give out the highest dividends and whose stock prices continue to increase are companies that continue to perform and grow and, thus, will keep growing your investment.

In addition, being a stockholder also entitles you to participate in the election of the members of the Board of Directors during the annual stockholders’ meeting.

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Final Thoughts

As with anything, people fear the unknown. But you can easily overcome your stock market fears by learning about the stock market. The more you know and understand, the more confident you'll become in stock investing.

Knowing the risks of investing in the stock market and understanding your tolerance for risk is essential. Furthermore, as an investor and part-owner, buy only the stocks of companies you believe will grow. You’ll know this by studying and learning about the company through related news and financial reports.

Sources:

^[1] Fear and Greed Index (Investopedia, 2022)
^[2] Panic buying or selling (Nasdaq)
^[3] Panic selling (Investopedia, 2022)
^[4]10 Blue Chip Companies to Add to Your Investment Portfolio (Security Bank, 2021)
^[5] PSE Academy
^[6]PSE Edge

DISCLAIMER: The opinions expressed by the writer are theirs alone, and do not reflect the opinions of Moneymax and/or its affiliates or any employee thereof. Neither Moneymax or its affiliates are responsible for the accuracy of any of the information supplied by the guest writer. The opinions expressed in this blog are for general informational purposes only and are intended to provide education about the financial industry.

Nothing in this blog constitutes investment or financial advice or any recommendation that any security, portfolio of securities, investment product, transaction or investment strategy is suitable for any specific person. This material does not take into account your personal circumstances, finances, goals and/or objectives; all of which are unique to you. Readers must make an independent decision regarding investments or strategies mentioned on this blog or elsewhere on www.moneymax.ph. We strongly recommend you consider seeking advice from your own financial or investment adviser before taking any action. We do not make any representation or warranty as to the accuracy, completeness or correctness of the information set out in this article.

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