Halloween, also known as All Hallows’ Eve, is observed each year on October 31st. This fun, but spooky holiday has its origins in the ancient Celtic festival of Samhain, when people would gather around bonfires dressed in costumes to ward off ghosts and spirits. Halloween today is traditionally celebrated with frightful decorations, costume parties, playing pranks and trick-or-treating.
Like Halloween, sometimes investing can feel like a “trick or treat” experience, with its risks as well as potential gains. Let’s take a look at the top five fears investors may have, and how to ward them off, too!
Scary thing #1: Losing money
Without a doubt, what strikes fear in investors’ hearts most is losing their hard-earned cash. This is also probably the number one reason that people who don’t yet invest, have shied away from the financial markets. The best antidote to this fear is to understand the risks involved and only invest an amount of money that you can afford to lose.
There are several practical features on eToro that can help here. The first is to use a stop- loss on all of your investments, which allows you to set the maximum loss you will incur before the position automatically closes. Check out our guide on Setting Effective Stop-Loss & Take-Profit Targets here. Next is the Risk Score, a key feature which shows the risk any eToro investor is taking, calculated using a specific formula which we have developed. Learn more about the Risk Score and how it is calculated here. And finally, with eToro’s Negative Balance Protection, you can never lose more funds than you have deposited into your eToro account. Read more about Negative Balance Protection here.
Scary thing #2: Making mistakes
This fear is a corollary of the first one, since one way to lose money is by making errors in judgment when investing. However, since perfect judgment all the time just isn’t possible for any human being, all investors make mistakes.
While mistakes sometimes can’t be avoided, they can be minimised. Financial literacy and investment knowledge are key here. Read more about the importance of financial literacy in this post and then head over to eToro’s Online Trading Academy, a free financial educational resource created to help you to be better informed and equipped to make better financial choices while avoiding common pitfalls.
Another way to deal with this fear is to make use of eToro’s free demo account. The virtual portfolio lets you practise investing risk-free with $100,000 in virtual funds, while gaining the confidence to make real-world decisions.
Scary thing #3: Bearish trend
When markets are flying high and sentiment is positive, it is easier for investors to feel optimistic and confident. But when markets fall, it is all too easy to panic.
Seasoned investors know that markets are cyclical. They typically rise and fall to a certain extent, and this pattern is to be expected. Skilled investors also know that a bearish trend can actually be an opportunity. A bear market enables you to “buy the dip,” which means to invest at lower prices and get more value, in anticipation of the time when the trend turns bullish again. Other strategies investors can employ are short-selling or turning to safe-haven assets.
Scary thing #4: FOMO
Ah, the infamous fear of missing out. This common investor anxiety can be as much a driver of the market as optimism can. There is no shortage of examples from recent times when investors went into a FOMO frenzy, rushing to get a piece of the profit: Dogecoin’s meteoric 12,000% climb as well as “meme stocks” such as Gamestop and AMC immediately come to mind. How is it possible to keep up when the winds seem to change so quickly?
One of eToro’s great advantages is that it is a collaborative investing community, where people share their strategies and insights together in real time. Make it a habit to check your news feed regularly and see what other investors are up to. And of course, eToro’s CopyTrader™ feature enables you to copy other investors automatically. Read more about two key social investing strategies in eToro’s guide here.
Scary thing #5: Not enough diversification
Much has already been said about diversification being a vital strategy for investors. Here, here, and here, for example. So assuming you are already convinced that you must diversify, how much is enough? How are funds to be allocated and assets weighted?
Fortunately, eToro has put in the time and effort to create a variety of ready-made investment portfolios, based on research, expert analysis, risk management and cutting-edge technology. These investment portfolios are a grouping of assets bundled together based on a predetermined theme or strategy, ranked by metrics such as market capitalisation, liquidity, and analyst consensus ratings, and then weighted accordingly within the portfolio. Check out all of eToro’s Investment Portfolios here.