Money Management
November 11, 2024
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Fear is necessarily not a bad thing. It's human to want to play safe and avoid uncertainties, especially where money is involved. But as you grow older, wiser, and learn more about the intricacies of money, you quickly realise that being cautious and avoiding risk isn't inherently safe.
The fear of taking risks can hold you back. It can prevent you from taking action early, delaying achieving your financial goals. Fear can expose you to various risks, but inflation and longevity risks are the biggest. The risk that your money might lose its purchasing power and the risk of outliving your savings and investments.
While your income will increase in your 30s, so will your responsibilities. As you start a family, your parents retire, and you gain status in the community, more people will start depending on you. You will also start planning for bigger goals like homeownership and retirement. You might have to take risks to increase your income and build wealth to meet all these demands.
But what if you fear taking risks? What steps can you take to leave your comfort zone? How do you ensure you are less susceptible to various types of risks and guarantee you not only have enough money to last you a lifetime but enough to live a comfortable life and leave some for your dependents? You'll have to learn how to overcome your fears.
This article will explore six smart ways to overcome fear in your 30s, take more risks, and ensure you set yourself on a path toward financial independence. Read on.
Read Also: What You Must Know About Taking Risks in Your 30s
When it comes to taking risks, the main thing that will likely hold you back is a lack of knowledge. It can build fear in you and prevent you from giving yourself the benefit of the doubt. After all, ignorance is bliss. But when taking any risks, especially when investing, the opposite is true, and knowledge is power.
By taking the time to gain more financial education, you can learn about all the risks involved in a specific investment product in advance. This will help you assess the risk before you can take, weigh it against your risk tolerance and develop a system to manage the risk.
If you fear investing and trading company shares, you can take time to learn how the stock exchange works, all the risks involved and how you can mitigate them. This will help you pinpoint the stocks you should buy, how long you should hold them, and even how much you should invest.
While you can use the internet to gain financial education, you should be skeptical of where you get your information. Always double-check your sources and take financial advice only from advisors licensed by the Capital Markets Authority(CMA).
Read Also: 8 Questions You Must Ask About Your Finances Today
Taking any risk without enough planning is a recipe for disaster. Before you assume any risk, you must have clear objectives. Ask yourself, "why am I taking this risk and what do I aim to achieve?" Since risk-taking is closely tied to investing, every risk you take should mirror a specific financial goal. Having a plan will help you eliminate fear and take more calculative risks. A plan will help you face your fears more confidently.
A simple plan would include the following steps:
Learning to be a good risk taker takes time. The best risk-takers didn't start with the biggest risk. They begin with the small, and as their risk capacity and tolerance increase, they get more comfortable taking the bigger ones.
Once your plans are worked out, you should start taking risks in phases. Starting with the smaller ones, you learn as you grow. This way, you can minimise your losses and learn from your mistakes. In the long run, as you get more comfortable with taking risks, you'll learn how to control your greed level, preventing you from taking on more than you can handle.
In your 30s, time is still on your side. You have almost three more decades to work and generate income. Even if your minor risks don't materialise, you can still get back on your feet. While your risk tolerance will likely decrease as you age, you can leverage the experience you get from conquering your fears and keep being aggressive for longer.
Read Also: 8 Ways to Save More, Save Faster, and Invest Better in Your 30s
The best way to reduce your risk exposure is through diversification. By allocating your portfolio across various assets and further diversifying within an asset class, you can offset losses. If one investment doesn't perform well, returns from a different investment will balance out the loss and minimise the risk you face, taking the fear factor out of the equation.
Diversifying is even more important in your 30s when you are investing and saving for different goals at the same time. Since different goals require different approaches when taking risks, you can diversify your investment according to your specific goals. When saving for short- and medium-term goals, you can choose to go for less volatility conservative to moderate assets. This investment can offset inflation and equity risks ensuring your investments don't lose value.
When investing for longer goals, you can choose to allocate your assets in volatile vehicles since you have the time to withstand market risks that cause volatility and wait for your investments to increase in value.
Read Also: 7 Ideas to Diversify Your Sources of Income
While expecting returns on your risk, you should also prepare for the losses. Diversifying and having a solid risk management plan minimises your risk exposure, but they don't eliminate the risks you face.
This is why it is important that when taking any risk, you get comfortable with the fact that you might lose part or all of your initial investment. This preparation will help you eliminate fear and ensure you make clear-headed decisions not driven by emotions.
Being prepared for losses will also teach you how to deal with negative results and failures. These lessons will make you a better risk taker and help you eliminate fear and tolerate uncertainties.
The best way to prepare for risk is to ensure you have a fallback plan. Understand the magnitude of the loss you face and how hard it will hit your finances. Will you be able to bounce back? Therefore, when preparing for loss, ensure you understand your risk tolerance and stay within that level.
Read Also: How to Mentally Recover After a Financial Setback
Risk tolerance refers to your willingness to accept risk and the volatility you are prepared to withstand. Fear is closely tied to your risk tolerance. While factors like risk capacity, attitude, time horizon, and financial goals should help you establish how much risk you should accept, fear can blind you from making the right decision.
Instead of taking risks based on your fears, you should start taking risks based on your tolerance. Understanding your risk tolerance starts with understanding your risk capacity— how much risk you can take— and your financial goals. For short-term goals, consider exposing yourself to low risks; for long-term goals, go for high-risk investments.
While you take steps to overcome your fears of taking risks, that doesn't mean fear should completely be removed from the equation. Sometimes fear can be justified. To take more risks confidently, you will have to redefine risk and understand it's not synonymous with danger and doesn’t have to be threatening.
When assessing your risks, it is important to consider both perspectives. What will you gain from taking the specific risk, and what will you lose if you don't? The returns you hope to get should be worth the risk you are willing to take.
You can also take fear off the table by offloading your risks to other parties. You can do this by hiring a financial advisor to guide you on how to invest and allocate your assets—or by investing in vehicles that pool money from different investors and invest on their behalf and pay dividends or interests.
This doesn’t eliminate risk but eliminates fear since a more professional risk taker will take chances on your behalf. You will still be exposed to market risks such as interest rate and equity risks that can affect your returns.
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