A couple weeks ago, I posed a question: why are you hesitant to invest? At the time, the market was in turmoil, with huge volatile swings daily in the market. I got quite a few interesting responses, and wanted to share the reason about why you, the reader, don’t invest or are hesitant to.
I was surprised to see how many of the responses fell into the following general bucks. Here are the reasons and my thoughts.
The Reasons Not To Invest
- Volatility
- Here’s what you said: “the up’s and down’s are too much”, “the going is tough”, “600 point drops spook me”, “things seem so up and down”
- My thoughts: I think volatility can be a huge factor. However, it is the ability to buy assets low that give some people advantages over other investors. If you dollar-cost average into the stock market (maybe through a 401k), you would buy at the lows as well as the highs. Also, you invest for the long term. As such, you seek gains over long periods of time, not just the short term swings.
- Uncertainty
- What you said: “People are afraid of the unknown”
- My thoughts: I agree that people are afraid of the unknown. However, my challenge would be why is investing unknown? Lack of education, overwhelming options (the next fear), or maybe volatility (see above). Or maybe the uncertainty comes from a fear of how the markets naturally act. Asset prices rise AND fall, and I think too many people become complacent in rising prices.
- Overwhelming Options
- What you said: “People are overwhelmed with all the options”, “There is no education about what to do”, “I wouldn’t know where to start”
- My thoughts: I agree that there are a lot of options out there with minimal education. Financial education in America is lacking at home and at school. As a result, too many people are making poor financial decisions. I think that both corporate America and government America need to work to improve the financial literacy of America. This means teaching basic finance skills (including investments), and legislating opt-out 401k enrollment (instead of the current opt-in system).
- Not The Biggest Priority
- What you said: “lack of extra funds”, “I still don’t have enough of an emergency fund”
- My thoughts: This is a perfectly valid reason to not invest. Investing is a long term priority. You may need to pay off debt, or build an emergency fund, before you even consider investing. Plus, you should only invest with funds you don’t need to access for a long time (say 20 years or more). That way, you can absorb the volatility in the market.
Final Thoughts
In this stock market, there are a lot of reasons to be hesitant to invest. However, by not investing in tough times, you usually miss the gains that follow during the “recovery” of the economy. If you don’t regularly invest, you risk breaking the cardinal rule of investing: buying high and selling low.
If you think that education is a roadblock, read up! There are so many great resources available to get started. I wrote The College Student’s Guide To Investing, which is a great start.
Finally, keep investing simple. You don’t need crazy products or random specialty funds. Keep it to index funds that track the big names you’ve heard on the news. Only once you feel comfortable should you look beyond these choices.
Readers, what are your thoughts?
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This post was written by...
Robert – who has written 317 posts on The College Investor.
Robert is the founder and editor of The College Investor, a personal finance site dedicated to young adult and college student finances. You can learn more about him here and connect with him on Twitter or Facebook.
{ 13 comments… read them below or add one }
I was just discussing this with someone today. They are not into investing at all. I think you need to be able to cope with ups and downs, and do research.
Investing for the long term in volatile markets like these is key I think, along with investing in stable/blue chip stocks.
Thanks for sharing this great post.
Yes, you need to keep a long term view when investing. I’ve known people to make an investment, and panic because it goes down just a little the next day. Stocks do go up and down!
You can always find reasons not to invest! One of the best reasons to invest is over the long term you will gain.
I agree with the long term growth perspective of investing.
As the old adage goes – when everyone else is panicking you should be looking for places to buy.
What will they do, by not investing money? Let the inflation eating their savings?
I think many are just trying to get a savings started.
I’m currently 100% cash. It’s not that I’m unwilling to invest. I really want to go short for the short term, but I’m excercising a little self restraint (because I’ve found that shorts are far too dangerous). I’ll probably buy stocks near Sept. 20 (Fed probably announce QE3)
I agree with Krant. You can always come up with an excuse. However not investing would be a mistake. You need those gains on your money over the long term in order to actually have it worth anything. Inflation is a killer.
“In this stock market, there are a lot of reasons to be hesitant to invest. However, by not investing in tough times, you usually miss the gains that follow during the “recovery” of the economy.” Perfectly said. There are a ton of reasons to not invest but I think there are more important reasons to take advantage of “sales” when you can.
I have a wedding coming up. I made peace that this is not the time for me to invest in stocks but to invest in wedding “stuff”.
It might be a “great time to invest” but not for everyone. The same analogy is that is is a “great time to buy a house”…not for everyone.
well whatever the market situation, you need to look at an investment vehicle that is comfortable to you… even during a downturns there are some investments that will recover faster than others… just needs a lot more research hours. If it’s your first time, start small first – dont put all your eggs into one basket..
I don’t think lack of funds is a valid reason not to invest. There are investments where you only need a small amount to start your investment. Let the investment roll and soon you will have sufficient amount to put bigger money on your investment.