Are you making investing excuses? You might be surprised at how your finances can improve once you stop looking for reasons not to invest.
“I'd like to invest, but …”
Does this sound like you? Whenever I talk to people I know about investing, I start hearing excuses. There is a host of reasons that people don't invest. Some of them — like a desire to get rid of high-interest credit card debt — make sense. Most of the common investing excuses I hear, though, can be easily overcome with a little education.
If you don't think you're ready to start investing, ask yourself whether or not you are giving too much credence to the following excuses:
1. I Don't Have Enough Money
This is one of the most common investing excuses I hear. In spite of the way that the Internet has democratized investing, many people still think that they need a large chunk of capital to invest. If you have $25, you can start investing.
Actually, you don't even need that much anymore. New investing platforms like Acorns?and Robinhood are changing the way we invest. You can start investing with as little as $5 when you open one of these accounts.
On top of that, you might be surprised at how much money you really do have available for investing. There is a good chance you're wasting money. Experts say that we waste between 10% and 15% of household income each month. That means that you can probably find a few money leaks to plug. Why not put that money to work for you through investing, rather than waste it?
Another way to look for money that you could use for investing is with the help of the new app Digit. This app analyzes your income and expenses each month and uses an algorithm to determine how much to automatically save on your behalf. You could easily find more money to invest with the help of this app. Between the new tools that allow you to invest with less, and ways to look for extra cash, you always have enough to invest.
2. I'm Worried that I'll Pick the Wrong Thing
When many people think of investing, they think of stock picking. What comes to mind when many of us consider investing is the idea of finding a “winner,” investing our money in that, and then make it big later.
That's not how investing works for most of the rest of us. In fact, it can be downright easy if you are careful about the way you go about it. The rise of low-cost mutual funds and ETFs allows you to invest in large swaths of the market at once. You don't need to pick the “right” stock to come out ahead. Rather than thinking that you need to “win” when you invest, consider the long game.
If you invest in an all-market fund for the long haul, there is a good chance that you will come out ahead. Long-term investing for most “regular” folks isn't about trying to pick a stock. Instead, it's about riding overall market performance which, over time, generally provides gains.
Rather than obsessing over picking the “right” stock, put together a portfolio based on principles of asset allocation and your risk profile, and use low-cost funds to populate it. You'll need to rebalance every so often, but it doesn't have to be a great deal of work. In fact, there are some investing platforms, like Betterment, that will take care of rebalancing for you.
You don't need to be very involved if you aren't trying to become an active trader. Most people do just fine as boring investors who start out with index funds or ETFs. As you become more knowledgeable and comfortable with investing, you can branch out if you want.
3. I haven't Paid Off All My Debt
There is an idea that you need to have all your debt paid off before you start investing. Many would-be investors put all of their financial resources into paying off debt early, even if it might not be a necessity.
While you definitely want to pay off high-interest credit card debt before you start investing, you might not need to pay off your student loans or mortgage before you start investing. In fact, tax-deductible debt with low interest?doesn't offer you the same return. Rather than put off investing because of some of this low-interest debt, get started now.
I'm an oddity because I'd rather finance a car purchase at 1.9% and invest than tie up a chunk of capital in a car that depreciates. If interest rates rise and I'm unable to get a car loan for a rate that's much lower than my potential investment earnings, things are likely to change. But for now, I'm comfortable with a certain level of low-interest debt if it allows me to invest for the future.
What are your investing excuses? How do you overcome them and take the plunge?
The stock market terrifies me. I think I paid too much attention to the section of U.S. History that dealt with The Great Depression.
That said, I recognize investing is a necessity. We have put it off (other than an IRA) until we’re a little more stable. Maybe it was a mistake, but that’s just what makes us comfortable.
I definitely have planned to use a mutual fund to help ameliorate risks. I have no idea how to pick a good stock, and I really don’t have the time/mental energy to investigate and keep up.
I’ll pay fees to let someone else worry about it for me. And then try to ignore the day-to-day losses or gains. Like you said, it’s a long game.
One of the reasons I love index funds is because it’s more about how the market does as whole. So, while there are down periods, look at the fact that, overall, things improve. You do have to watch out for downcycles coinciding with when you need the money. I should write a little more about the bucket strategy that can provide a buffer in this type of event.
It’s natural to be a little afraid of investing. But getting advice from professionals and doing your own research will help you to understand investments better (and stop making excuses!).