This is a guest article by William Cowie, who writes at Bite the Bullet Investing. While I considered myself a late bloomer in the world investing, not doing much with my money besides spending it until I was about twenty-eight, William started much later in his life. In this article, William describes how certain attitudes prevented him — and prevent many people — from investing.
I didn’t start investing until I was in my fifties, despite having a comprehensive education in finance and business. When I finally started, I was fortunate in many ways to be able to make up for lost time, and that enabled me to retire recently and start blogging about investing.
A good friend asked me the other day why, with all my financial education, I waited so long before getting started.
Good question. If someone asked me when I was younger if investing was a good thing, I would have said, “Of course!” But I didn’t invest. Why not?
As I was thinking about the question, I started asking other people why they don’t invest. I wanted to see if I was the only one, but I also wanted to get a better understanding of what I believe might be a common problem. As I put it all together, four excuses that hold people back from investing seemed to emerge.
Here are the common threads:
- I don’t have money to invest.
- I don’t have time.
- What’s the point? I’ll lose all my money anyway.
- Investing is over my head.
I don’t have money to invest.
I thought this was a valid excuse for many years. Initially it may have been true; very few people come out of college raking in “drop-dead” money, and this was my situation. However, it wasn’t long before my wife and I had three cars between us, all purchased new (financed), and an oversized house. We were always able to make the payments, but it never occurred to me that this was just a silly way to manage your money.
It was only after some time that it hit me: I always seem to have money for the things I really want.
How does it get there? By saying “no” to other things. And that’s what I started doing: saying no to everything not totally essential for our basic needs, and saving the rest. It’s amazing how much you can squeeze out of your budget if you’re really serious.
Initially I didn’t even have enough to open a brokerage account. So I opened a new savings account and put all amounts I could spare in there, just like a child’s piggy bank. It earned no interest, but I didn’t care. After a couple of years — and it did take that long — I finally had a few thousand bucks saved up, enough to surpass the broker’s minimum initial deposit amount. I used that to open an online brokerage account and make that year’s IRA contribution. That was the small start.
Where there’s a will there’s a way. No way too often means no will. It did in my case.
I also learned that even though it may look like nothing for the first few years, there is no ending without a beginning.
Starting small isn’t the killer, starting late is.
I don’t have time.
This is something I used to say while I was in my hamster-wheel career. But when I took some time out for a mid-career break, I found I had the time then, but I still didn’t invest. That’s when I learned that when anybody says they don’t have time for something, nine times out of ten it’s just code for, “I don’t want to do it.”
I learned that we all make time to hike, bike, or buy a house. If we want to do it, we’ll make the time. And investing is not a full-time job — not even close.
Once I had the desire to learn about investing, the time magically appeared. It always does.
What’s the point? I will lose all my money.
This is the reason I hear more than any other when I talk to people about investing. It’s just fear of the unknown. I got cured of this early on through a friend who was an investor. He had made the transition from living off an income from his business to living off his investment income.
As I got to know him, I saw him make money on some investments and lose on others. What I learned is most investments allow you to cut your losses quickly, but you can ride the increases as long as you want.
Is fear a valid reason for not investing? Consider something else we all do: driving. Have you ever gotten a ticket for anything? If so, you lost money. Did those fines wipe you out or stop you from ever driving again?
No. You’re aware of the risk of a speeding ticket, so you watch the speed limit and, for the most part, stay within it.
Driving is about mobility and freedom, not about fines. There’s the occasional fine, but the fines don’t define driving.
Same with investing. Investing is about gain. There might be a loss or two along the way, but those losses don’t define investing. There are some speed limit signs, if you will. When you heed them, your performance improves and the gains outweigh the losses.
Fear of loss is reason to be cautious, not to refrain from investing altogether.
Investing is over my head.
Can you buy a house? Really? What qualifies you as a house buyer? Shouldn’t you rather call a real estate agent, a real professional, and tell her to just go out there, find a house she thinks will be good for you, buy it, and let you know where it is and when you can move in?
I didn’t think so. Even if you buy a house for the first time, you do your homework, you find out what it’s all about, you schlep from house to house until your feet ache. You may not know exactly what you want, but as you see what’s available you figure out what suits you.
It’s the same with investing. You get yourself up to speed, you see what’s out there, you schlep from one investment to the other (figuratively) until you have an idea of what suits you.
If you can buy a house, you can learn to buy an investment.
Why invest?
In life you get an income from only two sources:
- Your job or business (labor), or
- Your investments (capital).
Most of us can think of something better than the grind we’re in right now. To get there, you need to move from number one on that list to number two.
And starting early is the only effective way to do that. I didn’t have someone to tell me that when I was younger, and I lost out big as a consequence.
Man learns from his mistakes. A wise man learns from another’s mistakes.
Thanks to the internet you can learn from my mistakes. There are a plethora of resources to learn about investing before you have the money. With knowledge, any fear of “losing it all” will fade away, and you’ll find yourself becoming excited about the opportunities and find the time to learn even more.
Published or updated April 24, 2013.
{ 10 comments… read them below or add one }
Great call, William! Investing for me starting when I was 18. Though my parents mostly gave horrible financial advice (“sure, go ahead and blow that $25k, you’re young”), they did have me open a Roth IRA and max it out for 2 years. But I didn’t invest much after that because of the excuses above. I just started socking away cash in my 401k at work last year, and just raised it to the match level this year.
We are the perfect example of an EXTREMELY TIGHT budget, but still saving for the future. Compounding interest is a modern miracle, and I plan on taking advantage of that as much as possible while I’m young. I’ve got some aggressive goals, and investing well is high on the list.
This ties in well with the debate about financial literacy (with it being financial literacy month) and how much people’s choices are about not knowing any better and how much are about the choices (and excuses) that people are making.
Luke,
I’d agree these are all common reasons I hear from my friends under 30 as to why they haven’t invested. I’m including myself! I lean on the I-don’t-make-enough-money and it’s-over-my-head excuses. But investing is in my 12-month plan!
Where would you suggest people under 30 start? Any great online investing options?
-Christian L. @ Smart Military Money
The way i try to look at “I don’t have the time” is “I am unwilling to prioritize that enough to give it the time.” You or i have the time. We are just not willing to give it to ______(fill in the blank here)
OK i stole the analogy from Ramit Sethi.
5. The game is rigged against small investors.
Great post, William.
I like your blunt assessment of how most people’s “reasons” for not investing are just excuses they have sold themselves.
Another common excuse for some people is that they want to wait and see what the “best” investment is before they commit. It’s funny how these people would rather wait at the sidelines and talk than actually take action. They are probably the same guys who stand at the end of the bar and discuss girls all night than actually go and talk to one.
Whether it’s investing or in real life, a good idea is no good to you if you don’t actually take action on it.
For me, I didn’t start investing until last year was because of my finances & I felt like investing was over my head. It wasn’t until I started to read books, blogs, listen to podcasts that I started to invest in the stock market & now I just love it. I’m spending a lot of my free time researching different companies and seeing how future economic, social trends will affect the market.
You talk about losing money or the fear of it. As long as you don’t buy on margin, that should not be a worry. You write about buying three cars. Well, there’s a dumb financial decision that many people make. Lets say each car costs 25k. That’s 75k or more spent financing you cars. Just 5 years later, what are your cars going to be worth? Probably half that amount. People make dumb decisions like that and you are guaranteed to lose money. At least with stocks, there is a chance you will make money. My cousin, when he was 16, his dad bought him a nice Honda Prelude, 30k car. Now, he sold it a few years ago for a few thousand. Had he invested that money himself in stable blue chip stocks or the index, he would’ve had enough money to buy a house in cash or a Ferrari by now.
One challenge for many in Canada is that they are too far in debt so even if they wanted to invest, they tend to prefer to pay down their debts first. And these would be ‘bad’ debts like credit cards and non-secured LOCs with higher interest rates.
When is the best time to save money for your future? Now! Like Nike says: Just do it!