Decoding the investment fear factors among young investors

Investment is an integral part of financial planning while one starts earning. The mode of investment has changed over years across generation. But research shows that Gen-Z has a strange fear in exploring various investment options.

Active investor accounts increased by more than 10 million in 2020, according to the data from the country’s two main depositories. Data shows this surge in new investors is mostly constituted by young investors. Of the 7 crore users at the BSE, 38 per cent are in the 30-40 age bracket, followed by 24 per cent in the age of 20-30, the stock exchange data showed. The numbers of users with age of less than or equal to 20 now account for 5.9 per cent as of June 7, 2021, compared with 3.9 per cent in May 2020 and 3 per cent in January 2016.

Despite the surge, the number of young investors in India is comparatively less as compared to other western countries and the reason behind this is the fear gripping their minds.

Here are some of the major fear factors that drive the youngsters and ways to get rid of them.

Not immune from cognitive prejudices: According to various academic research, more than 45 per cent of millennials tend to invest in financial products like equity and mutual funds. They have become kind of loss averse as many millennials saw their parents bear financial losses during the recession in the years 2007–2008. Some are even prone to herding and thus, despite having access to several sources of financial information, millennials are not immune from cognitive prejudices. Herding occurs when investors make financial decisions based on the collective actions of others while ignoring their own private information and signals.

Lack of concrete goals: Once you have learnt about different types of investments and how they work, you need to set target dates and financial goals for your assets. A majority of the youngsters failed in proper investment plan because they lack proper financial goals. One needs to have a predefined timeline for the investment. Once you have figured out your expectations of returns from the investments within the predefined timeline, investing is an easy task.

Falling prey to greed: Legendary investor Warren Buffet wrote that, “Occasional outbreaks of those two super-contagious diseases, Fear and Greed, will forever occur in the investment community”. Young investors are often driven by greed and with the greed of making quick money within short time, they end up investing in wrong products and at times often fall prey to scams. One of the easiest ways to avoid this is to conduct an in-depth research about the financial products and figure out if that aligns with the investment goal or seek help from a financial advisor before investing. Often many youngsters distance themselves from investing with the fear of falling prey to such greed and ending up losing money. Instead of refraining completely from investing, it is better to try out the alternatives.

Never be afraid of small steps: Many times, the investors have a preconceived notion that if they fail to take large leaps in investing, the investment won’t make any sense. But that is not the case. An investor should never be afraid to start small and begin with sums of money that he or she can afford to lose. Once you have an idea on how to have a balanced investment portfolio, you can invest in more stocks or make other investments.

Investment anxiety: Your choice of investment products is a function of your risk attitude. If you suffer from investment anxiety, it is better to start investing only in bonds (recurring deposits with banks) to earn interest income. Although, the returns may be significantly low, but it may help you overcome the anxiety. Moreover, active self-distancing from investment also helps in overcoming such anxiety. Active distancing refers to the process of deliberately distancing yourself from an investment decision. After active self-distancing, the investors need t set up an automatic debit from the bank account to a chosen mutual fund (through systematic investment plan) instead of making an ‘active’ decision to manually transfer money into the fund each month.

Being demotivated: Investors always need to keep in mind that the market won’t be bullish all the time and one should not feel demotivated while the market is bearish. If you feel that your investments may lose value, always be motivated to start afresh. Not investing or not taking risk is the biggest an investor can make. One needs to be always open to the idea of learning from your mistakes—and those of others—so that you can plan accordingly to minimize your losses in future.

(By Shivansh Bhasin, CEO & Founder, The Investrology)

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