Investing is a good way to make your money grow and secure your future. Considering this, why some of us still avoid it? Here are the most popular reasons why people don’t invest when they should.
Why People Don’t Invest
The reasons why people don’t invest depend on their age, status, wealth, social background, and money mindsets. In general, there are several powerful emotions behind this reluctance to put money into something that pays off in the future. They are:
- Insecurity and lack of confidence
Now let’s see how people translate these emotions into excuses and explore why their reasoning may be faulty in every particular case.
Reason 1: “It’s For Professionals”
It’s the most popular excuse. Traditionally, investment had many barriers to entry and non-professionals didn’t do it (or outsourced it). Today, it’s changing. But if a person who has never taken a finance class hears a conversation of seasoned traders, he gets an impression all this jargon is too complicated and ‘professional’.
This mindset is wrong. In fact, every person is able to understand the basics of investing and trading. People, who are good at it say they learned the fundamentals in their early years. For instance, when their parents stopped paying for the kid’s music lessons because they saw no results over a year. It taught the kid a few things about the value of time and money.
These days, almost everyone with core education is able to understand how an investment works, even if we speak about ‘hi-tech’ assets like cryptocurrencies. If you want to enter this brave new world, we recommend reading our Cryptocurrency Investment Guide.
Reason 2: “I Cannot Afford Losing Money”
Fear of losing money is deep-rooted in our subconscious. Money represents safety and if you are naturally averse to risk, you’d rather keep it under your mattress.
What’s wrong with this logic? It’s important to understand that in most cases our perception of investment risks is not based on real figures and long-term statistics. Rather, it is based on a couple of horror stories about people who lost everything in one day and jumped out of the window. These stories may be true — occasionally, investors do suffer big financial losses. But the long-term statistics show that you may recover the lost amount over time and have a considerable gain, too. The clue is to be patient and follow your strategy.
Another thing to keep in mind is that the value of your “mattress money” gets eroded over time due to inflation. So, you lose money by NOT investing it into anything. Can you afford this?
Reason 3: “I Prefer to Invest In Stuff”
This excuse if one of the silliest ones. Almost in any case, if you have some extra money, you should invest it rather than spend it on expensive stuff. Again, there are some exceptions: real estate, collectibles, and art objects have the potential to grow in price and make you richer. (But it’s an investment, too).
Other material stuff like electronic devices, clothes, and cars tends to lose its value over time. You will never be able to sell these items for their original price, say nothing about making a profit. It’s another example of how material things — and our core instincts — let us down.
In the worst case, people “invest” in status symbols they cannot afford. By the time they pay out the debt, these things become worthless. On the contrary, a smart investment choice would have given such people a chance to reach prosperity instead of imitating it.
Reason 4: “I Am Still Too Young to Think About My Future”
Let’s face it — we are always either too young or too old for something, and the time is never right. Before you come up with this excuse next time they ask why you don’t invest, consider two things.
First, young investors, with 30 or even 40 years of active work life before them, have a time advantage. People in their 20s or early 30s can invest a small amount and see it grow considerably by the time they retire. The longer your money works, the more it earns!
Second, younger investors can afford to take bigger risks — they are more daring and have a lot of time to recoup possible losses. Older people are naturally averse to risks, but when you are in your 20s or 30s you can bet on volatile assets like cryptocurrencies and make big gains, potentially. Use this advantage.
Reason 5: “My Family is Rich Enough”
Okay, you have rich parents or an elderly relative who promised to make you an heir to their millions. Does it mean that you have no need to invest? Most people would say yes, it does.
This is how arrogance works: my family is rich and I can afford not to think about my future. The problem with this mindset is that there are no guarantees in life. Many movies and books are based on the stories of people who thought their folks were rich and lived up to this standard. Then, these people inherited nothing but debts and had to spell everything out to cover them. Or their rich aunt suddenly made some amendments to her will, and the nephew got nothing but memorabilia.
Whether your family if rich or poor, you should consider the investment. Moreover, if it’s rich you have some important advantages. First, you can invest a significant amount without sacrificing immediate pleasures. Second, you become independent of your family's wealth and get something that would be 100% yours. Third, you can afford to take bigger risks and professional advice.
Reason 6: “I Earn Too Little Money”
Experience says that very few people are too poor to start investing. The excuse “I barely have enough money to make the ends meet, so I have nothing left to invest” is often used by people with good salaries. Normally, our “necessity needs” grow bigger when our income increases. So, we never have anything left, no matter how much we earn.
If you want to break this pattern, start with some budgeting. Unless you are very poor, you will discover that you can put aside 10 or even 20% of your monthly income. Then, open a savings account and put this money on it. The interest rates are small, but it’s a good start.
With time, when you learn more about investment strategies and tools, you will be able to move to more advanced practices with higher levels of profit.
Reason 7: “I Have No Time”
One of the weakest excuses ever. Lack of time is never really the case, it’s just another harmful mindset. It is based on the idea that investing requires a lot of time.
It may be true if you are a professional trader, who makes this activity a full-time job. But in many cases, taking care of your future does not mean spending all your free time in front of three monitors. Say, if you opt for a long-term investment strategy, you can leave your money alone for several months. So, start with defining your financial goals — it will allow you to calculate how much time you will need, exactly. Also, try seeing investment as a game and not work: thus, it will be easier to overcome the “I-have-no-time” mindset.
Reason 8: “What If I Need This Money?”
Here we deal with the reversed version of FOMO. People don’t invest because they are afraid they might need this money to settle a matter of life and death. They belong to the “what if” category. “What if I die tomorrow — all these sacrifices would be for nothing”. “What If I have a car accident — I will have nothing to cover the damage”. Or, “What if my kid needs an emergency treatment tomorrow?”
To fix a “what if” objection, it would be useful to assess the probability of all these things happening to you. Analyze the statistics to see that fires and floods are rare disasters and not the norm. At the end of the day, your financial inertia will cost you more than taking small risks.
Why People Don’t Invest: Conclusion
Identifying the trick your mind uses to prevent you from putting some money to good use, is important. If you or your friend are skeptical about investing, you probably use one of the 8 reasons above. Well, now you know how to break or bypass these stereotypes.