Conquering Your Financial Fears

An unusually helpful bit of pop psychology holds that we should worry only about things we can control or effect and put aside anxieties we cannot. That advice holds true for worrying about money and investing.

A 2005 Money Magazine poll asked readers about their financial fears. Many of those topping the list cannot be controlled by the individual or have little likelihood of happening. Addressing a related fear that can be controlled may help alleviate some of the anxiety.

Fear: Stock Market Crash

Almost half the respondents in the Money survey said they were concerned about a potential stock market plunge. While visions of the Nasdaq tech crash still haunt some of us, the reality is, your biggest worry should be getting mediocre returns from your investments. People often abandon the buy-low, sell-high principle when they need it most. Good markets make many investors feel invincible so they don't sell or rebalance. When markets decrease and prices are low, investors get scared that they will lose out on potential gains. They jump ship figuring a small return is better than none but ignoring the potential upside if the stock price rises again.

Diversification and dollar-cost averaging may help you avoid mediocre returns. By making sure your portfolio is invested for the long haul across a variety of markets, countries and investment vehicles, you may reduce your risk exposure and potentially open yourself up to more than mediocre returns.

Fear: Identity Theft

Americans have a great deal of fear of identity theft and for good reason. It can wreck havoc on your personal finances. Mistakes on your credit report, however, are far more likely and can severely damage credit ratings.

In 2003, the Federal Reserve selected 250,000 credit reports and found that 70% of them contained mistakes of some sort. Those mistakes can range from minor to inaccurate or false delinquencies that can ruin your credit. Be cautious about giving out your Social Security number and check your credit report once a year for inaccuracies.

Fear: A Failing Economy

High energy prices, terrorism and natural disasters are all enough to make Chicken Little look rational. With our penchant to view the future as a continuation of the past, it's no surprise that many Americans fear another 1920s-style depression or worse.

By investing in a wide-variety of investment vehicles, you can help increase the chances that if one major world economy starts to sputter, you're gaining in another one that is booming. For those in retirement, where income distribution is so important, having a strategy that generates income in good times and bad is critical.

Many of us fear the worse on a consistent basis, and we all face risks every day. The real task is rooting out which financial fears can be controlled and then working with your financial professional to minimize your risk.

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About the author

Robert Valentine is a well-known expert in the matters concerning investors. His popular Roth 401k articles have been published by several publications throughout the United States. Please visit his website, http://www.themoneyalert.com to view his column.

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