Investing is like everything else. The hardest part is to get started. Unlike cycling, swimming or fast typing, however, it is much more difficult. Many aspects of investing are beyond the investor’s control. This is probably part of the reason why there are relatively few people investing in every population. Regardless of whether we look at statistics from Polish, Turkey, the EU or the USA – most people have never started their own adventure with investing. Every person I know who did not decide to take this step had their own reasons and fears. Let’s discuss a few that I have come across most often and that effectively stop many from starting investing.
Why invest at all? I don’t need to!
This argument most often appears in long-term investing. Especially those for retirement. Thinking and acting that rely on benefits deferred for many years is extremely difficult. A novice investor, almost, struggles with an attitude developed evolutionarily over thousands of years. What was important for survival was here and now, not what will happen in 30 years. Evolution has given up the genetic pool of people who considered concerns about the situation in the savannah in a decade and did not look for a tiger at that time.
Meanwhile, planning and persisting in long-term goals is of enormous importance for the investment result. Every day we have to remind ourselves of this need and fight against the evolutionary “software” that has been installed in us. So what do we do? We rationalize! After all, so many current pensioners have not invested anything throughout their lives, and somehow they are alive. So many friends and friends of their friends also do not invest and they also live. So we come to the conclusion that there is no point in investing. Life will work out somehow.
Somehow it will work out. That’s true, but the fact that friends don’t invest doesn’t mean anything. The situation is analogous to exercises. We understand that to be in good shape, you need to eat less and exercise more. If we don’t do this, life will work out somehow. We are unlikely to die (immediately) of a heart attack or diabetes. There is even a chance that we will not be obese. However, we will certainly be in worse shape. In this regard, we understand perfectly well that the fact that friends do not exercise does not say at all whether it is good behavior.
Pensions for years are an unknown
There will come a time when you will not want to or will not be able to continue working. The state will provide you with some kind of pension, but demographic mathematics is merciless. Current pensioners benefit from a generational pension, i.e. the fact that in their youth there were more children than adults. Currently, these children are adults. However, they have fewer children of their own. Effect? The pool of money for current pensions is relatively large. However, in three decades, when the current numerous adults retire, the pool will be smaller. There will simply be more pensioners.
Then it will turn out that only poverty can be divided equally, which in pension terms is expressed by the replacement rate. Within 30 years, the replacement rate is expected to halve from the current more than 55% to less than 25%. If you are a JDG entrepreneur and not a full-time employee, you can also safely assume that you will get the lowest possible pension.
Of course, it may not be 25%, but more. A lot can change by 2050. Maybe we can improve demography a bit? Rather, we will certainly raise the retirement age. Maybe immigrants will help us a little, etc. There are many possibilities. However, the implicit assumption should be that the replacement rate will be lower than it is now. Investing is a necessity for anyone who wants to have something more than poverty
I have too much information and I don’t know what is important
In investing, only a few factors remain under the investor’s control. This generates another concern. On the basis of what information and when to make a decision to start investing? Every day, financial markets, economists, analysts and commentators describe dozens of economic and market data. Some are in line with expectations, others exceed expectations, and others are below expectations. The barrier to starting an investment is the mass of noise generated by this information.
In addition, the investor’s interpretation of this data changes over time. Therefore, there is a situation where sometimes data exceeding expectations is associated with market growth, and other times the same data also exceeding expectations is associated with declines. An investor who is about to start feels very lost in this. Every now and then we read about:
- GDP growth
- Economic development indicators
- Data from specific companies
- Data and production or sales
- Labour market
- Exchange rate
- Central Bank Policy
And a whole bunch of other factors. Dealing with the fear of too much data before you start investing has two aspects. First of all – no one has a crystal ball and knows what will be decisive and most important in the near future.
I’m afraid of hitting a market crash!
Investing always involves risk. There is no exception to this rule. Even the bank where you keep your deposit can fail. Of course, it rarely happens, but even such “super-safe” investing involves a minimal dose of risk. When an investor thinks about making a decision to start investing, there is a fear that I will not hit the worst possible moment.
Fear that a moment after investing, a crash will start and there will be a loss immediately. There is also an idea that it is enough to wait a while and invest right after the crash to enjoy great profits. To address his fear, the investor starts looking for information that could actually cause a crash. To his amazement, he discovers that there is always a potential reason for a market crash! Some data is worse than expected, somewhere we have the bankruptcy of a company or problems in China. Maybe there are debt problems, or bad decisions by central banks, or a disease that could be the second pandemic. You can list it endlessly.