They are everywhere around us. Some of my best friends are this way, and in this post I want to address all their sayings. All their clichés. I’m talking about people who don’t invest. People who have strong feelings about the stock market or don’t have any feelings about it at all. Some of them are just being lazy, but some are doing it out of principle. Let’s dig into their characters.
Types of non-investors
- The lazy—He intends to invest. He follows the market and knows about trends and booming sectors. Constantly saying he just needs to organize his financials. He forgot his password to his bank account, barely knows if he has a 401(k), and all his money just stays put in his savings account. In the meantime, the market keeps rising, and he’s out of luck.
- The indifferent—Somewhere in the back of his mind he knows that there is something called capital market, but he doesn’t really care about it. It’s not something for him and doesn’t interest him at all.
- The scared—This guy hates risk. He doesn’t want to even hear about the stock market and prefers to keep his money close to him. He just doesn’t understand that taking no risks is a very risky strategy.
- The anal—Hypothetically, he would invest, for example, If ke knew everyhting or if someone would promise him a reward without risk.
- The nonbeliever—He doesn’t “believe” in the stock market. He considers it a fake religion or a gamble and believes that everyone loses, and the rich get richer.
You also have subniches for these types. One would invest only if you could guarantee him a high return. Another thinks that the stock market is going to fall any day now, and someone else is just waiting for a good entrance point.
How to handle these types
Empirically, investing in the stock market is the best thing to do with your money, especially for young people. A marketing issue, though, may prevent many from investing.
I believe the marketing issue can be solved, and that the stock market can be even more attractive to millennials, but their financial literacy should be much better. I know many people who are saving their money in an account and just waiting for it to grow enough for them to buy a house.
The profitability of buying a home is a topic for another post, but even if you believe that buying a home is the best thing to do with your money, yet you can’t afford it, you should do something else with your money—at least for now.
Just do something with your money . . .
The lazy and the indifferent—These people are the toughest of all because it is much easier to confront someone who opposes solid facts than someone who ignores them. If that person is not exposed to the data or it doesn’t interest him at all, we should find a way to get to him. We live in generation of TL;DR, and we need to provide accessible data—short enough to be readable but long enough to be thorough. We need to use statistics and infographics, and we need to emphasize this important mantra: Taking no risks is the biggest risk of all.
The scared—He is better positioned than the previous person because he has feelings about the stock market. His feelings might be bad, but bad feelings are reversible. This is when financial literacy is necessary—understanding that taking no action is an action itself. Those who are scared should understand that losing the value of their money is even scarier than living with the fluctuation of the stock market.
The anal—The anal person is definitely convincible. All we need to do is convince him that timing will never be perfect. You can’t time the market, so you can’t enter it at the lowest point and escape at the highest point. A good way to handle this is to allow a direct debit each month to invest in an ETF tracking the major indices. By doing this, you will not need to be correct on timing, and you can buy shares automatically and not risk a great amount of money at one time.
The nonbeliever—Arguing with facts has never been an issue for some, though we have no other choice but to wave in the historical data and be very explicit while presenting the information. It’s true that the rich get richer in the market (as they do everywhere), but everyone can actually get richer in the market. Investing for long periods of time in financial vehicles tracking the indices, such as ETFs, is the most profitable investing strategy (at least a passive strategy).
The importance of financial literacy
In general, the answer for each type of person and each type of resistance lies in financial literacy, which has to tackle various points:
- Young people, even teenagers, should know the advantages of long-term investment. They should be aware of statistics and historical data and should be familiar with the equation of risk equals reward.
- Compounding should be a word heard more often in schools and colleges. We need to help people realize that the value of a dollar saved and invested today will increase at an exponential rate in the future.
- Saving—It’s true that high consumption drives the economy, but by saving money today, you will be able to consume more tomorrow.
- Financial awareness—Be aware of your fees, your yields, and don’t leave financial matters only for the experts. It’s always good to get some advice from experts, but the best advice you would get is to lower your fees, and financial experts usually take fees. Fees can hurt your portfolio over time.
Financial knowledge and awareness are necessary in our fast-paced and changing world. The most important advice is not to ignore this need. You wouldn’t do this with your health or even politics, would you?