This blog has been beating the drum about saving and investing for a while now. However, readers have pointed out several reasons why they do not invest.
I also had doubts about investing, and I did not invest for a long time. That was a big mistake because I lost out on all those years of gains. Hence I wanted to use this blog post to talk about the two most common reasons I hear from readers about not investing:
1. Risk: Investing is too risky / I don’t trust the stock market / What if there is another crash / etc.
Investing does seem risky. The stock market routinely goes down, and sometimes by a lot. Keeping your money in the bank is much safer. You don’t wake up one day to find that your bank balance went down 30%.
However, it is also true that no matter how many times the stock market has gone down, it has always bounced back. Always! Sometimes it takes a few months to bounce back; sometimes, it takes a few years. If you have a long time horizon, there is nothing to fear from stock market crashes.
If you are in your 30s / 40s / 50s, it does not matter if the stock market crashes for a few months or a few years. You do not need your investment money for many more decades. And although the stock market may go up or down in the short term, over multiple decades, we can all be sure that the stock market will go higher.
So if anything, you should want more stock market crashes. These crashes allow you to invest in the stock market at a lower price (who doesn’t love a good sale).
Keeping money in the bank is risky, not investing! The best rate at a bank today is 3%, while inflation is around 8%. Things are getting expensive by 8%, while your money is growing at 3%. That means your money is not growing at all – it is actually losing value at the rate of 5% (8% minus 3%).
2. Knowledge: Finance is complicated / I have not learned investing / Not sure where to begin / etc.
Finance seems complicated. Turn on a business channel, and we are bombarded with complex financial jargon. Most so-called experts on TV sound smart even though they say nothing useful.
The financial industry does not want to make things simpler. If finance folks tell everyone that investing is simple, how will they make money? Who will buy their complex financial products or pay them for their fancy advice?
Just like you don’t have to be a Michelin-star chef to cook your meals, you don’t need to be a financial wizard to invest your money. You just need to save a portion of your salary every month and buy VOO. That’s it. It does not have to be any more complicated than that.
Investing can be daunting if you are new to it. However, there is no better time than now to start investing. Even if you want to start with a small sum of money. The journey of a thousand miles begins with a single step!