Why You Shouldn’t Be Investing

Don't invest!

It starts with sweeping generalizations.

“Investing is for rich people only”

“The stock market is a scam”

“All wealthy people are evil”

The above statements, of course, are easily refutable.

After all, you can start investing with as little as $10.

Thanks to all the excellent personal finance books out there, it only takes a few hours to understand the basic mechanics of the stock market.

And once you do understand how the stock market works, you also understand that it’s NOT a scam.  Instead, it’s a rather ingenious way for individuals like you and me to invest in large corporations like Apple, Microsoft, and ExxonMobil.

Finally, there are more than twenty million millionaires in the US alone.

That’s more than the population of the top five US cities combined – and no, those people are not all evil.

In fact, the vast majority of them are regular folks like us, trying their best to improve their lot in life.

Where things get a bit more complicated is what I call the “second level” excuses.

Statements like:

“Now is a horrible time to invest”

“The valuations are sky high”

“It’s too late now – we missed the boat”

“The stock market is about to crash”

“The fiat system is doomed”

“Don’t you read the news? A recession is coming”

And of course:

“But what about Japan?!? Huh? Have you seen Japan?”

As an aside, the last statement dumbfounds me the most.

I mean, I’ve never seen anyone recommend a 100% allocation to Japan, the UK, or any other single-country stock market out there.

The notable exception is the US but that’s for risk-seeking individuals like yours truly.  The vast majority of people are much better off in a world tracker.

And yet, it seems that the “Japan argument” comes up in every other investing conversation out there, including multiple comments on this blog.

But back to the point at hand.

Pessimism Galore

There are countless reasons why people around you (as well as random folks on the internet) might try to dissuade you from investing.

Some are simply trolling.  Sadly, not everyone is interested in having an honest intellectual debate.

Some others lack the means to invest – or have the means but not the discipline to put some of their money aside instead of spending it all today.

No one wants to be left behind while everyone around them builds wealth.  But instead of trying to get ahead by fixing their own finances, such people prefer to hold everyone else back instead.

And then there’s the category of folks who are genuinely interested in investing – but scared to death of losing money.

Thus, they focus on wargaming every possible negative scenario, waiting for the day the mental traffic light flashes green and they can finally get going.

The problem is that… that magical day will never come.  You know it, I know it, and deep inside, they know it too.

No Easy Answers

The problem with the last category of folks above is that they live with an idea that somehow, someday, investing can become a risk-free affair.

Well, that would certainly be the day to get started.

Sadly, things simply don’t work that way.  The lower the risk associated with an asset class, the more money starts chasing that particular asset class.

As a result, the price of that asset goes up – and the returns decline.

Investment grade bonds are safer than stocks – hence they return 2-3% per year instead of 8-10%.

And cash is safer than bonds – hence it yields zero in nominal terms and has a negative real return (thanks to inflation).

The correlation between risk and returns also varies in the stock market, depending on the overall mood music.

When the market is on a tear, the perceived risk of investing declines.  A flood of money rushes in, and stock prices rise.  All hail the bull market!

In reality, however, that is NOT when you make your money in the stock market.

The success of your investing strategy is actually determined during bear markets, when things feel risky as hell and everyone is running for the exits.

This is why it is so important to keep investing through downturns – or at least sit tight and not liquidate your holdings when all the “experts” around you tell you to sell.

What about things other than the stock market, you may say?  I mean, index funds can’t be the only way to build wealth, can they?

Sure thing.  I’ve had friends who got rich in other ways.

One has done a ton of value-add real estate.  A few others got a big equity slice by joining an early-stage start-up.

And more than a few of my clients became multi-millionaires by launching their own businesses.

But before you dive in, remember – if you don’t like the risk profile of the stock market, you probably won’t be able to handle any of the above options either.

Imagine losing a few million invested in a real estate project or seeing all your equity (and your job) evaporate in a WeWork / Coinbase / Klarna-type meltdown.

That temporary 20% stock market loss doesn’t seem so bad now, does it?

At the end of the day, it all boils down to the same story I’ve seen play out again and again in my two decades of working and investing.

Building wealth may be simple, but it sure isn’t easy.

It takes hard work.  It takes patience.  It takes consistency.  And it definitely takes an ability to handle a degree of risk.

And yet, the folks who really want to get rich will find a way.  They always do.

Everyone else will find an excuse.  Plenty of those floating around.

Only you get to choose which camp you will land in.

As always, thank you for reading – and good luck!

About Banker On Fire

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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.

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3 thoughts on “Why You Shouldn’t Be Investing”

  1. Thanks for the article, it leads me to a question I’ve been wondering about; we’ve all seen the arguments for passive investing over active, and I’m sure that’s the correct approach in aggregate, but are there any elements of the economic cycle (e.g. recession) where using an active manager would be better (temporarily)?

    1. Yes, an excellent one from Monevator as usual

      Rob – to be frank, I don’t see any environments where an active manager would outperform consistently.

      Come to think of it, the only “active” intervention that could help your portfolio outperform over time is someone who is actively preventing you from selling your index funds in a bear market!

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