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No matter what the source of your current phobia, it’s important you hold at least some of your portfolio in the stock market.

Stocks will go up and down for various reasons. Over the very long-term, stocks are your best protection against the ravages of inflation. Even when current market conditions are weak and Wall Street closes at all-time lows, losses are usually short-term. If you want to retire, you probably won’t reach your financial goals without investing in stocks.

How quickly you regain your confidence depends on what caused you to lose it in the first place, and there are several possibilities:

  • You took a big hit in the last market slide
  • You took a big loss when the market wasn’t sliding
  • You had some financial or career related problems that had nothing to do with your investments, but made you cautious about investing nonetheless
  • Your investments under-performed in the market for an extended period of time

If the reason is one of the above, or even something else, try some of these tactics to get back into the market.

Move back into the market very gradually

One of the reasons people lose confidence in the stock market in the first place, is that they plunge in up-front. They take very large positions in the market and the results don’t quite play out the way they expect. That’s a mistake you don’t want to repeat.

Pretend your previous negative experience never happened, and you’re starting all over for the first time. This time you’re going to exercise more caution.

Start by investing a small amount, maybe 10% of your portfolio, in the stock market. Alternatively, rather than moving money into the market in chunks, you can dollar cost average your way in through payroll deductions, that way you can leave the rest of your portfolio intact.

With either option, you’ll begin your re-entry gradually. That will enable you to build your stock position slowly, giving yourself time to adjust to the higher level of risk you’re taking on as you do.

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Build up cash reserves

While you’re building your stock position slowly, you can build your cash reserves aggressively. This enables you to accomplish two goals:

  1. Increase the size of your investment portfolio, even though you’re not building your stock portfolio quickly.
  2. Cash is an alternative investment, but one that will also provide you with more investment capital to eventually invest in stocks.

Cash itself can also be a confidence builder. Since it is a zero-risk investment, it can increase your willingness to seek the higher rewards that can come with moderate levels of risk in stocks.

Invest in funds, not individual stocks

Perhaps the reason you got burned on the last go round was because you were heavily invested in individual stocks. To avoid this mistake going forward, turn your money over to the paid professionals.

Whether you choose mutual funds or exchange traded funds (ETFs), each fund represents a portfolio of stocks, and there is at least some safety in numbers when it comes to stocks.

Index funds can be even lower risk. Despite the hype that surrounds managed funds, index funds generally out-perform managed funds, especially over the long-term.

One of the reasons this is true is because index funds don’t usually fall as far as managed funds do in bear markets. You can make more money with index funds by not losing as much during downturns.

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Invest in lower risk sectors

Not all stock sectors perform equally, some sectors do outperform the broader market during bull markets, but collapse during bear markets. Some sectors perform better during an economic crisis. For example, retailers have performed better during the coronavirus pandemic as people stock up on supplies.

Other sectors tend to be more stable. Investments in income stocks, growth-and-income stocks, or blue-chip stocks offer growth potential — but without the weakness on the downside that growth oriented sectors have.

Don’t invest beyond your comfort level

If you pay too much attention to the financial media, you may find yourself investing a higher percent of your portfolio than you’re comfortable with. For example, if you’re in your 30s, common recommendations by industry experts may instruct you to keep 70%, 80% or even 90% of your portfolio in stocks.

There’s logic to those recommendations, but they may be too high for you personally and your financial goals. No problem! If you’re more comfortable with 50% in stocks, or even 25%, then that’s what you should go with. You’ll get growth, though less of it, but you’ll also take on less risk.

If you take a large position in stocks, and get burned again, you may exit the market once more — maybe even for good.

No matter what, stay diversified

Perhaps the best way to ease your fears of getting back into stocks, is to diversify your investment portfolio. We’ve already discussed maintaining a healthy cash balance, but you can also have generous positions in longer term Treasury securities, real estate investment trusts (REITs) or even invest in real estate itself.

All will provide alternative investments to stocks and will keep you from “having all of your eggs in one basket”. A diversified portfolio can spread the risk, and keep you from having a larger position in stocks than you’re comfortable having.

That portfolio should include a substantial position in stocks, but you can balance it with other investments. This strategy may take some of the hesitation out of making the decision to jump back in the stock market.


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Kevin Mercadante Freelance Contributor

Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com.


The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.