Overcoming FOGS: the fear of getting started

The value of your investments and the income you receive from them can go up and down, and you may get back less than you invest. Any examples are for illustration purposes only.

In Indiana Jones and the Last Crusade, Indy’s quest culminates in a gutsy step onto an invisible bridge, letting him avoid a seemingly bottomless drop and carry on chasing the Holy Grail. After an equally exciting journey from cash accounts into the world of investing, a lot of UK investors teeter on a similar ledge, willing themselves to step into stocks but with enough fear to keep them still, in cash.

Just like our whip-cracking hero though, a lot of investors find that weighty first stride turns out to be a lot less scary in hindsight. Of course, that doesn’t help silence the worries in the moment. So, let’s tackle a couple of the most prominent ones now - you never know, it might help you or someone you know finally take that step into investing for the long term.

As concerns go, it’s a biggie and rightly so. We work hard for our money and the last thing we want is to see it dwindle when we’ve tried to let it grow.

Loss aversion is one of the most common human traits and is among the main causes for inertia in the whole cash-to-investing mindset shift. After all, cash doesn’t tend to lose its value… or does it? You might not see the amount of cash in your account go down but if everything’s getting more expensive faster than your money is growing, ultimately the value of your cash is reducing. Inflation risk is real, and there’s no guarantee your cash will beat it. Of course, it’s not a sure thing investing will either but, historically speaking, it has a better chance.

Percentage of time periods when US stocks and cash have beaten inflation, 1926-2024

Sources: Schroders, Morningstar Direct. Stocks represented by Ibbotson® SBBI® US Large-Cap Stocks, Cash by Ibbotson® US (30-day) Treasury Bills. Data to December 2024.

Stocks also benefit from the glory of compounding - building interest upon interest over time - with the snowball effect becoming more pronounced the longer you leave it. And that’s the key element: time. Even if cash savings rates were to keep up with inflation, stocks have a habit of generating higher returns when the compounding kicks in.

When it comes to your own stock picking, a lot of people are paralysed by the thought of losing money. The reality is that the same risk that allows for potential return also brings in the possibility of stocks going down - them’s the rules. But, by starting with small sums, diversifying your portfolio, choosing stocks with high quality attributes and not overpaying for their shares, investors can learn by doing rather than being stunned into inaction. Also, if that word ‘risk’ gives you jelly legs, it’s worth revisiting what it actually means.

When it comes to actually choosing those stocks, readymade index exchange-traded funds (ETFs) might be a good place to start. These are baskets of stocks that track broad market indices like the S&P 500 in the US or the FTSE 100 in the UK. They are essentially one-stop shops for investors looking to buy one product, with an entire market under the bonnet. A lot of investors will supplement this with some smaller positions in a ‘core and satellite’ approach’. These aren’t the only things to buy though - check out a reminder of more assets you can invest in as well as what to consider when you’re researching stocks to buy.

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Do I need to get every stock pick right?

Reframing risk: five points to clear the fear

You will make mistakes but make them early, with low values, and learn from your experiences. Did you buy on hype rather than business performance? Did you miss something in your research? Did the share price not reflect the company’s earnings? Make a note of what went wrong and look out for it next time. We’re all in pursuit of spreading our money across stocks with bright futures - it’s normal to fall into some laggards along the way but it’s about how you deal with it that counts. Don’t let a standard part of investing put you off the whole thing.

In the end, if cash could give us equity-style returns with no risk, you’d be hard pushed to find an investor that wouldn’t opt for chucking notes into a bank vault. But, it’s stepping onto the risk ladder that allows for that hopefully long-term outperformance of stocks over cash, and we need to accept that volatility is the price we pay in the meantime.

None of this is to say that cash is useless. It’s pretty handy when the bills come in. But, when it comes to growing our money over the long haul, it can be worth channeling your inner Indiana Jones - you might find that step isn’t as scary as you thought.

Important information

When investing, your capital is at risk. The value of your investments, and the income you receive from them, can go down as well as up and you may get back less than you invest. Forecasts aren’t a reliable guide to future results or returns.

Make sure to do your own research on what investments are right for you before investing or consider seeking expert financial advice. Please note that this article is meant for information and does not constitute any financial advice. This is not an offer, recommendation, inducement or invitation to buy, sell, or hold any securities, or to engage in any investment activity or strategy.