Overcoming the emotion of fear

Following up on my last post, I would like to write today about fear.

Just as a reminder, in my last post I introduced 3 important topics, that are necessary to understand and successfully turn towards an investor mindset. These 3 points are the following:

  • Understanding and accepting the principles of the so-called “financial triangle” (part 1)
  • Overcoming the emotion of fear when it comes to investments (part 2 – this one!)
  • Investing time to make informed decisions on investments (part 3 – next week)

The fear of investment

This topic came up partially a few times in some of my previous posts in the past. However, I would like to dedicate one article specifically to this topic with a few more details. The reason is, that once you understand the principle of the financial triangle, which I introduced just last week, you will realise that taking risks is an unavoidable part of any type of investments.

This is a serious and very important realisation, because it makes it crystal clear: If you can’t accept taking risks, you can’t invest successfully. And this happens to be not only true for many people, it is also one of the main issues that is holding people back from starting to invest in the first place.

The idea of the potential for losing even a tiny fraction of ones savings, frightens so many people in such a strong way, that instead of evaluating their options, potential risks and corresponding opportunities, they immediately dismiss the entire idea and stick to keep doing what they were doing so far: Nothing.

Now let me tell you something about doing nothing. There is a great quote that fits very well on several topics, including this one:

“Standing still is the fastest way of moving backwards in a rapidly changing world.”
– Lauren Bacall

The same goes for your hard earned money. Doing nothing is not a safe thing to do. Just the opposite. Doing nothing is a guarantee for losing money.


The no.1 reason for this phenomena is called inflation. You surely heard this word very often before, but truly understanding it, should make you worried. Because if you truly understand it, you will know that the value of this 500 USD under your pillow will have a much lower value next year. And the year after. And the next year also. It doesn’t end.

This may be not a perfect example because there are obviously more things connected to it, but take a look at prices for mobile phones. Let’s take specifically the iPhone. On June 29, in the year 2007, the iPhone was released with an introductory price of 499 USD. It was a top product with the latest and most modern technology on the market (if not compared to SoftBank phones in Japan, those were lightyears ahead).

10 years later, the iPhone X came with the lowest price-tag at 999 USD.

So while your 500 USD would have been enough in 2007, to buy the newest iPhone, in 2017 those 500 USD would be only sufficient for a 50% down-payment, again for the newest available model in that year.

The macro-economics behind that are of course highly complicated, but at the end of the day, Apple is not just raising prices to make even higher profits, but to ensure stable and increasing profit margins and to pass on their own costs for research, development, suppliers, etc. back to their customers.

So good or bad example, you get the point. Prices go up and the value that this 500 USD offered to you in 2007, came down by half in only 10 years. And you can see similar examples in many other areas. Whether it’s diary products, vegetables, fruits, gasoline and whatever else comes to your mind. Prices go up, thus the value of those saved USDs is constantly going down.

Saving accounts & Government Bonds

Inflation is covered pretty well in the press, thus most people are aware of it and understand, that putting money under a pillow (or certainly better: in a safe) is not a smart long-term solution. Therefore, those who seek security, tend to put their money into saving accounts. With the current interest rate it’s not a money maker either, but the argument is, that saving accounts are offering at least a little protection from inflation. Same is being said about government bonds.

But let me ask you a thing: Are you sure, your money is safe there?

First, let’s talk about saving accounts. The financial crisis of 2007 and 2008 is dating not that long back. But its effects did last far longer, and, according to Wikipedia, between 2008 to 2012, the amount of banks which failed and had to either declare bankruptcy or a restructuring, mounted up to 465 bank in the US alone. Now what happened with all those savings accounts in these banks?

When you check the details of your savings account with your bank about the protective systems that are in place to ensure that you get your money back, even if a bank fails, you might discover a surprise. Some banks cover as little as 20.000 EUR and most banks in Europe have changed their policies and regulations to a point that they now protect not more than 200.000 EUR. This goes for your savings accounts, but not necessarily for your current account.

How things can turn out with your current account can be even more dramatic. Just ask the people in Italy, Greece or Cyprus about their experience with banks in the last 10 years. When your country gets in financial distress, which can very well be caused by a financial crisis, you may experience going to an ATM to withdraw some cash only to find, that it’s not working. You go to the next bank and the next ATM, and you find that they all are not working. You turn on the news and suddenly you see, that all banks in the country have shut or limited operations – and you have no more access to your account.

What you’re gonna do?

I got no answer to this question, but my point is that, if there will be another financial crisis, its effects can have a profound impact on investments that most people consider to be safe. They are not, at least not to that degree as one would love to believe.

So, if you have no way to fully protect your assets from a financial crisis, you might, rightfully, be scared about savings and investments in general.

What is the right strategy in this kind of a situation? Well, it’s not an easy one. We have to face our fears. We have to understand, that risk is just part of how our world works and we have to learn to manage it.

There are a few easy, understandable strategies and techniques, that can help anyone who puts a little time and effort to understand them, to minimise risks and to increase the potential for higher returns on your assets.

Investing is only for the rich

One of my favorite websites and even more so the Twitter account is the site of Visual Capitalist or @VisualCap. There is always something great to discover there, like for example beer prices across borders:


This example should have some serious impact on the next travel destination, right? These graphs are not only entertaining and educational, they also cover a huge amount of valuable information that is meticulously gathered and put into easily digestible perspective. Another recent example is this one:


Warren Buffet is, without doubt, one of the most successful investors of our time, but he started on a very small scale. Actually as small as most of us. What he discovered early was the power of investments and of compound interests, re-investments and patience.

The common belief that investing is only something for the rich is fundamentally wrong.

Fact is, that most people don’t have sufficient financial education. Schools tend not to focus on money as a topic in detail and parents often believe that the only way to reach financial highs is to have a sky-rocketing career. For most, saving large amounts is only possible with a similarly large pay-check.

This could not be further away from the truth. In fact, having obtained my vocational education in a German bank many years back, one of the most astounding things I noticed early on was that people with large paychecks were usually the ones with the largest debt. While they had good credit scores, they often struggled on a monthly basis to cover their cost of living and paying back credit card bills.

On the other hand, the average customers of our bank who earned regular wages but were also very diligent in savings and keeping their living cost at bay, tended to have very solid 6-digit accounts by the time they were in their 40ies. For those who invested in the stock market, this happened often even much earlier on.

You got to start and you got to keep doing it.

Understanding and realizing that every saved amount matters is crucial to reach the goal of financial independence. Even a small contribution of 25 – 50 EUR a month makes a difference and one will quickly realize that saving money makes us actually much more happy than spending money.

It helps in setting goals along the way:

  1. Goal: Reach 1.000 EUR (4 digits)
  2. Goal: Reach 5.000 EUR
  3. Goal: Reach 10.000 EUR (5 digits)

Once the goal is set, you really got to stick to it. There will be setbacks and there might be rough times when one gets really tempted to spend the stacked away cash or to sell the investments made. But as I mentioned in one of my previous articles, time is your biggest asset and patience, diligence, and perseverance are key to success.

Investing is for everyone.

The sooner you realize this, the sooner you will hit your 6 or even 7 digit target.

Conscious Spending Habits

It can’t probably be repeated often enough so let me say it just once more: Being in control of your income and expenses is a crucial discipline that needs to be mastered in order to reach financial independence. Today, I would like to give some advice on the expenses side.

Let me start by saying that personally, I truly hate shopping. I like small grocery shops, fresh markets. I hate shopping malls. Not for their value and convenience of having everything you might need in life in one, central location. Yes, I admit I also spend time in shopping malls occasionally. What I hate is the fact that the constant competition that drives markets is intentionally pushing us into very unhealthy spending habits and encourages us to be constantly spending money.

I am amazed and terrified every single time when I enter a shopping mall, to see how many hundreds, thousands of people daily stroll from shop to shop and swipe one credit card after another to carry home as many bags as possible with them. The consequence of this is an empty account at best and credit card debt at worst.

Sales bargains and saving money

There is really only one definition of saving money: Not spending it. The one most intentionally false statement that you can see everywhere is the sales pitch of “saving on sales”. Buy 1 get 2, save 30%, and all other kinds of promotions have nothing to do with saving money. It is such a tricky way of manipulating our brains that I am really appalled by it. It addresses our desire to spend not more than necessary by stimulating one of the humans most primal and dominant instincts: Greed.

If you see a 2 for 1 promotion on toothpaste, chances are high that you will jump on it. The promoted retail price seems to indicate of really doing nothing wrong on this bargain and we immediately recognize that for paying what we normally pay for 1 pack, we receive the double value. Sounds great, right? Well, not in my opinion.

Toothpaste is a product that we use every single day and a pack might be finished within a month or 2, depending on size and frequency of use. Buying the promotion will reduce the time required to repeat the purchase within the regular usage-timeframe and also half the cost of it. There is nothing wrong with that, in fact, for a super-frugal living, it might be even recommended. However, it might quickly lead you to copy this into all other products purchases which may result in an overall negative effect on your spending and consumer habits. You see, when we have more of something, we also tend to use more of it simply because we lose the feeling for the value of the product.

For the case of the toothpaste, I remember as a student there was a time when I was really short of cash and needed to save on every single penny. When my toothpaste was about to run out, I would squeeze the tube until getting the last drop of it and even when I could not squeeze out anything anymore, I would cut it open and scratch out the last tiny rests to ensure I fully utilized the product. Chances are high that I wouldn’t do it if there was a second pack of toothpaste in my bathroom. I would most probably not go through the effort and just open the new pack.

Quality over quantity

In my opinion, simple living means to buy things that we need and to enjoy and fully utilize the things that we have. We don’t need to compromise on quality and purpose, but we should be conscious about why we buy something and for what reason as well as how we use what we have once we have it.

If you need a shirt, buy a shirt. You don’t need two of them. You don’t need to spend hours looking for the best promotion in the entire shopping mall. Just establish a budget and buy the shirt within this frame, that you like and that gives you the feeling of having bought what you wanted and what you came to the shop for. Buy it, wear it, keep it in good condition and enjoy it for as long as possible.

The more expensive the product or purchase, the tighter should be your criteria and the less should be your willingness to compromise on quality. Value is obviously always a factor, but the value is a tricky metric because especially for expensive products like laptops or cars it stretches over a long period of use. It may involve some points which you are not aware off, which may turn out after months or years and therefore you could or would not consider at the time of purchase.

To give an example: You might get a great deal on a diesel car right now, but a hybrid or an electric car might turn out to be the better deal, even at 50% higher cost, considering how technology and markets might develop within the next 5-10 years.

For a laptop, you might wonder why anyone would spend the double price on a MacBook compared to regular Laptops or Tablets, but you might change your opinion once you require a laptop for work and consider your requirements on a robust and reliable supportive equipment for your profession.

Have a budget in place

What I would like to make clear is that the combination of a minimalistic living approach with consciousness on quality and purpose can give us not only great satisfaction, but it will have a positive effect on our spending habits. You will quickly realize that the idea is not about reducing all your spendings but that it’s more important to enjoy and appreciate every single purchase that you do.

One important step that I did not write about yet is to have a plan in place. A budget. I will follow up on this with more detail soon but in the meantime, this is too important not to emphasize it: No matter how good the bargain is, if you don’t have the money, don’t spend it.

I want to be perfectly clear on this. If your account balance does not allow a purchase of a product, then you should not buy it. There may be certain very specific situations in which you may have an advantage by buying something through borrowing money or utilizing your credit card, but this should be a seriously special occasion and request a very realistic evaluation whether there is no other way around it or whether it can be postponed. Borrowing money, credit card debts, these are serious matters that push you in the wrong direction. No matter how good a deal may sound, if you can’t afford it, then don’t buy it.

Shopping is a formula to keep your account empty

At the end of the day, what is important is that you keep your main target on the horizon. To reach financial independence we need to focus on purchasing products that keep generating additional value. As explained in my previous article, The Investor Mindset, most of our daily purchases lose value the moment we take them in our hands.

Therefore, normal regular shopping should not be a daily activity and not a habit. It’s a sure formula to keep your account empty.