One of the best ways to improve your chances of financial freedom down the road is to invest. However, many people have a hard time getting started. But why is that? If something is holding you back from investing, it’s time to examine the situation. See if you can figure out what some of those roadblocks are (and how you might be able to get through them). That way, you can set yourself up to have a healthier financial future. Those long term returns can be truly life changing. You just need to get started and be patient. Let’s examine some of the common excuses I hear from those who resist investing — and how to overcome them.
“I Need More Money to Get Started.”
The biggest excuse I hear about investing is that there’s simply not enough money to get started. It’s a common myth that you need to have a lot of money to invest. You don’t need to be a millionaire to make progress with your investments.
In reality, you can get started with as little as a few bucks. Many online brokerages don’t have minimum account requirements. You can start with just a small amount of money. Then, you can hopefully commit to investing a small amount on a regular basis. Even a small, consistent investment is better than making no investment at all.
Investing will eventually build wealth, even if you just start with pocket change. Start with something simple, like an index fund or ETF. You can also take advantage of dollar cost averaging to build your portfolio. Regardless, you really don’t need a lot of money to start investing. So don’t let that hold you back.
“I Don’t Have Enough Knowledge.”
We tend to think that investing is complicated. And sure, it can be, if you get deep enough. But it doesn’t really have to be. If you’re getting into advanced day trading strategies, or using more complicated strategies like options and futures, then things can get a little bit complex. Some investing ideas definitely require a lot of specialized knowledge.
The good news is that you don’t actually need that deep knowledge to be successful in the long term. Most of us can do just fine with a basic knowledge of how stock markets work. As long as you stick to tried and true investing methods, you don’t need to be an expert.
Index Funds Can Be Really Simple
Some of the simpler investing products don’t require a lot of knowledge. Understanding the stock market, when you look at it in a broader sense, isn’t that complicated. If you take a few minutes to learn about indexing, you can understand investing enough to make some good long-term decisions. That will get you started.
Over time, over you can branch out with your strategies as you learn more and gain confidence. When you’re just starting out, though, an all-market index fund is easy enough to grasp. Pick one you like and you can get started quickly.
Don’t Try To Outperform the Market
Be careful as you are branching out to more complicated strategies. Multiple studies have shown that a “set it and forget it” investor — with a diversified basket of index ETFs — will beat the vast majority of sophisticated investors (using some advanced strategy) in the long run. Especially when you factor in the trading fees of those numerous transactions and tax costs. Investing performance can be heavily influenced by emotions. Humans aren’t always very good at keeping those feelings at bay when they need to.
If anything, have the majority of your assets in diversified portfolio. Then only venture into complex strategies using a small subset of your money. Even if you find yourself beating the odds and making good money with that subset, think twice before you risk your entire retirement prospects on your ability to outperform the market. It’s basically impossible in the long run.
You also need to factor in the time and mental energy you’d be putting into analyzing and tweaking your portfolio daily. Could you actually come out ahead by keeping everything in index funds and using that free time to earn more money instead?
“But None of My Friends Invest.”
If none of your friends are actively investing, it might feel like there’s no real need for you to start. Don’t fall for that trap. You might even be the person in your social circle that gets the ball rolling for everyone. Learn the ropes, then teach your family and friends how to become (and hopefully stay) rich.
There’s also a good chance that someone you know is already investing — they just haven’t brought it up. I was at my son’s soccer practice the other day and someone asked if anybody was invested in cryptocurrencies like Bitcoin. All the dads instantly mentioned how they have a tiny bit — or at least know a friend who became rich owning some.
It surprised me a bit. I wouldn’t have thought that so many of them would have delved into these digital coins. We’ve been hanging out at practices for the good part of the year now, but the conversation never came up. If that guy didn’t bring it up, no one would’ve known everyone had that common interest.
“I Refuse to Profit Off of People’s Misery.”
My dad once told me he would never short a stock, since he felt like he would be profiting off other people losing money. He was also a smoker but refused to buy tobacco stocks. He felt like those companies were (and still are) making money by causing people harm.
There are cannabis stocks, companies that own prisons, and even big oil — plenty of businesses that can be branded as an “evil corporation,” depending on your perspective. I can see how some people may be reluctant to invest in the stock market for moral reasons. Luckily, there are still solid investment options for those who want to steer clear of anything that could be considered problematic.
I would still recommend a standard index fund that tracks the whole market. But for those who absolutely want to avoid anything that might wear on their conscious, I suggest looking up socially responsible investing.
“I’m Worried About Doom and Gloom.”
This is a big one for beginner investors. Honestly, it’s something I even feel myself at times — and I’m here telling you that investing is a must. Everyone can feel hesitant to put more money into the markets, from time-to-time. After all, the media is always reminding us of the dangers ahead. It feels like there’s always some economist predicting an imminent recession.
It always helps me to look back at the history of the stock market and see the facts for myself. Yes, markets do crash on occasion. Sometimes, the crashes are very big. However, they always bounce back eventually. Every. Single. Time.
Technically, no recovery is ever guaranteed. However, the market represents a piece of the profits to all of the corporations in it. They aren’t likely to just disappear. When you bet on the market (as a whole), you’re betting that corporations in aggregate will continue to make money in the long run. Short of a world ending event, that’s a good bet to make.
There’s an old investing joke that says how economists have correctly predicted nine out of the five recessions. In other words, economists are always predicting doom and gloom. You know a recession is coming eventually. But no one really knows when the next one will hit. So stop worrying about it.
Investing is Always a Good Choice
If you are still on the fence about investing, you really ought to start. Investing is one of the best ways to build wealth over time. In fact, consistent investing is the way to create a successful retirement.
Even if you start small and build up, you can make good progress with your finances (and your future) when you invest. You shouldn’t let any of your reservations keep holding you back.
I Put Money Where My Mouth Is
I didn’t know it at the time, but I actually started investing for my retirement when I was a teenager. It started out with me investing the money I made at summer jobs in a mutual fund that my bank offered. It was all I could afford to invest, so that’s what I did. Over time, as I began to earn more (and my financial situation improved), I began investing more. Now I have a 401(k), Roth IRAs, a taxable account, and more.
There are plenty of folks who like the idea of setting aside money, but they do so in a savings account. They consider that a “safer” option than investing their funds. However, simply parking your money in a savings account won’t build the wealth you need — no matter how much you set aside every month.
Savings Accounts May Not Be That Safe
A savings account will probably never be able to get you to a comfortable retirement. Let me give you an example. Say you could set aside $500 a month. If you did this for 30 years, you can expect to end up with $243,408. That’s not nearly enough to retire on — and this makes the assumption that you are going to earn 2% APY on your money. That’s far from a guarantee, since savings accounts are currently paying 0.5% APY. I picked 2% assuming that rates will climb back higher over the next three decades.
On the other hand, let’s assume you took half of those savings and invested them with a 6% annualized return. After 20 years, you would have $474,349. That’s almost double the amount you’d have only using a savings account. For the very careful retiree, it might even be possible to survive on this amount. Then consider how much more this amount would be if you had invested 90% of your savings instead of 50%.
How Investing Impacts Your Retirement
Finally, what if you invested all of your $500 a month in stocks? After 30 years, you would wind up with $1,194,125, assuming an annual return of 10%. If you believe the 4% rule, that’s enough for you to get about $47,765 per year to live on. Not bad. For many retirees who choose to retire in a low-cost area, that’s enough to live comfortably.
Of course, this just gives you a rough idea of what to expect. It doesn’t take into account inflation. It also operates on assumptions of long-term performance, since the actual performance of the market varies from year-to-year.
The point of this example is to help you figure out how much you should set aside and to show you how beneficial it is to invest. Even if you only invested between 50% and 75% of your contributions in stocks, it will help you build wealth at a faster pace. With this kind of planning, you can prepare for financial freedom.
The Bottom Line
Take a look at what’s holding you back from investing. Then see if you can gain the information you need to overcome those fears and move forward. A savings account is great for short term savings, since the value doesn’t fluctuate much. However, as you can see from the example I gave you, you’d be missing out on massive returns if you only park your money in a savings account. If there’s still something holding you back from investing, you need to address it as soon as possible. Your future self will thank you.