Kathleen wrote a post recently about how fear affects investment decisions. Her article explored how women, in general, tend to be more risk averse than men. But risk aversion is just one reason why people don’t invest when they should.
There are many reasons why you might not be investing your money properly. A lot of it has to do with your own personality, fears, and limits.
Let’s look at some common reasons why people don’t invest.
Why People Don't Invest
1) Emotion: This is a big one. Investors can get emotional when handling their own money. They fall in love with their stocks. Some people obsess over uncertain strategies or lose sleep at night because of their investments. For many, it’s just easier to stop investing and remove the worry.
2) Ego: Pride can cloud judgment. Ego can get in the way of making hard decisions. It hurts to lose money. It can be difficult to admit you were wrong and cut your losses. This can become a big problem if it causes you to lock up and avoid making decisions when they need to be made.
3) No Interest: Many people find money incredibly boring! If you’re reading this blog…you probably don’t fall into that category. Like anything else, it takes time and dedication to get good at investing. Some don’t care to follow markets or read business news.
4) Laziness: Hey, we’re all human. That means we all have the capacity for incredible laziness. That’s ok…as long as you’re honest with yourself about it. And just because you’re lazy doesn’t mean you have to be stupid…you can hire a savvy professional investor to handle finances on your behalf.
5) Too Busy: Some people are legitimately too busy to manage investments. If you work full time, raise kids, maintain a relationship or marriage, and still want some time to enjoy life…that doesn’t leave time for investing. If you don’t have the time, then hiring an investment manager could be a good idea.
6) Risk Averse: Like we talked about earlier, some people are simply risk averse. They don’t like to take chances with their money. Cash is comforting. And they have a hard time pulling the trigger when it comes time to buy anything more risky.
Professional Money Management
What should you do if you know you want to invest, but don’t want to do it yourself? If any of the reasons listed above apply to you then you should think about hiring a professional to manage your investments. There is no shame in hiring a pro. So, if you decide to hire outside help…what are you options?
Full-service stockbrokers sometimes have bad reputations. And it’s true that some can be unethical and churn (excessively trade) accounts to make extra cash for themselves.
But a good, honest stockbroker can be great for a young investor just starting out. Many brokers don’t have account minimums like fee-based financial planners. They can give you solid advice and help educate you. And if they are competent and ethical, they can grow your account and help you achieve your goals. And you can always switch to a fee-only planner later on when your balance gets bigger…
Look for a younger broker trying to establish their career. They will work hard in order to get your referral business to build a practice. Or, if you want someone with more experience, try to find an older, more established broker. Someone who might enjoy helping a younger investor beginning his or her investment journey.
Fee-Based Investment Advisor
These advisors typically take a yearly fee based on the dollar amount of assets under management (AUM). The fee can be anywhere from 0.5% to 1.5% depending on the size of your account. One advantage of fee-based arrangements is that your interests are more in line with the advisor. They have less of an incentive to churn your account, since they are not paid commission like the stockbroker.
But the downside to fee-only planners are account minimums. Many of them won’t even consider working with small clients. Minimums can range from $250,000 to $500,000. So, this might put them out of reach for younger investors just getting started.
If you have a 401(k) or similar qualified plan then you probably have to pick investments yourself. If that doesn’t appeal to you then consider investing in target-date funds instead. These funds are convenient for those who don’t want to spend too much time rebalancing their own portfolios. The target-date fund automatically adjusts its holdings depending on your age, risk tolerance, and time to retirement. Check with your plan administrator to see if they offer them.
Remember, many otherwise intelligent and competent people can be very bad at handling investments. Or they may just not want to do it. There’s nothing wrong with hiring a professional to manage your money. Sometimes it’s the responsible thing to do and it can be a good way to reach your long-term investing goals.
If you don't want to do it yourself, what other advice do you have?