Just recently I was talking to close friends of mine who were starting to save a little extra money. Like any responsible young adult, they were starting to ask questions about what to do with it, and their thoughts were focused on investing. Actually, they told me that they had been sitting on some serious cash for some time now because they didn’t know how to get started.
The conversation progressed, they asked me lots of questions and I answered them to the best of my ability. I told them what I understood and pointed out other areas where I’m still learning. While I’ll share the details of this conversation in future posts, the fact that I was having this conversation with a couple in their late 20s, almost 5 years after they had been holding a professional job, concerned me.
Young adults have the upper hand when it comes to investing because time is on their side, but only when they take advantage of it. Too often, as is the case with some of my close friends, young adults (and people in general) make excuses to delay investing. As it turns out, there are several common excuses that everyone makes, and they fall in three types/categories. There may be a few more excuses that people create, but the popular ones fall into one of the following three categories.
Common Excuses to Postpone Investing
Excuse #1 – “Investing is Too Risky”
When I was in middle school and making some easy money from my lawn mowing business, I started to take an interest in investing. Since I didn’t know any better, I was really interested in stocks, with a focus on individual stocks. I went to my dad and told him that I wanted to buy my first stock. I had “completed some research” and finally found a stock that I thought would perform well. I was so proud of myself – what other 14 year old has cash to buy his/her first investment?
That’s when my dreams and confidence were shattered in one fell swoop.
What happened? I’m glad you asked.
My dad explained that I could lose this money.
WHAT!?!? “But this is my money,” I pleaded, as if my dad could change the way the stock market worked and guarantee positive returns.
When I stop to think about it, my surprise and subsequent fear of the stock market was justified. I had just previously learned of CD’s and interest rates. A fair amount of my life’s savings was in the bank account, some of which in CDs. This was back in the day when interest rates were modest, and I felt like I was investing my money since I was getting positive returns.
If I was “investing” in CDs and getting a safe return, then why couldn’t the stock market provide the same guarantee? This was my rationalization – and who can blame my 14-year-old self.
Unfortunately, too many people focus on the volatility of the stock market as an excuse to delay investing.
Variations of Excuse #1:
“I don’t want to lose my hard-earned money.”
“I’m afraid of something going wrong.”
“Everyone knows that the stock market is about to crash…”
Excuse #2 – “Investing is Too Complicated”
Another popular excuse when it comes to avoiding investing is the fact that it is so darn confusing. In many ways, I get it. I understand why people would and continually do say this.
At first glance, investing is really complicated. Trying to wrap your head around the idea of investing in actual companies is one thing, but understanding all of the possible ways to accomplish that is another. Not only are there different types of equities, but also ways to invest in them. There are even several different types of funds that allow you to invest in a group of other funds with one purchase. This doesn’t even mention that there are investments other than the stock market.
Variations Excuse #2:
“I just don’t understand investing.”
“I don’t want to jump in without doing adequate research.”
“I just want to know what I’m doing first…before I start investing.”
If you need help overcoming this excuse, try investing through Betterment. Betterment is an investment firm that lives and breathes passive investing. Their strategy rests on using affordable (low fees) investment funds that will more or less track with the market average. Better yet, their user interface is easy to understand and use. By moving a dial, you can set your risk tolerance and they will adjust your investments for you.
Excuse #3 – “I Don’t Make Enough Money to Invest”
The third excuse the people make focuses on income – more specifically that he/she does not earn enough money to have money left over to invest. Somehow people believe that investing is only for the high-income individuals. I wish I knew where this originated from, but the fact remains that it is a popular excuse.
I hear this all the time among my peers, sometimes in different forms.
Variations of Excuse #3
“I barely make enough money to survive as is – how am I supposed to invest money?”
“I’ll invest later after I get another raise.”
“I don’t know how anyone is able to survive on how much I make.”
Don’t Let Yourself Delay Investing
While it may take time to realize if you are using one of these three excuses to delay investing, the truth is that these three excuses are not good excuses. Delaying investing not only means that you are missing out on great opportunities (compound interest, employer’s 401k/403b match, among others), but it could also mean making retirement planning that much more challenging.
More importantly, you NEED to invest. Inflation causes our money to lose value each and every year. In order to preserve the future value of your money, you need to invest. Sure, there will be fluctuations, but history has shown that the market generates a positive annual rate of return over a long period of time.
If you have conquered these three excuses, help me spread the word about the excuses that are ruining lives: