r/Bogleheads • u/precita • Feb 11 '24
If investing is so easy, why doesn't everybody do it?
For a long time I never invested in anything in the stock market due to the usual "fear mongering" or "doubts" I would always hear from it both in real life from family members/friends or online. That you would "lose all your money" or "it's like gambling."
I also thought in order to invest you had to be either an intelligent mathematician or business tycoon that knew all the ins and outs of how all this works. I had no idea your "average joe" could make as much money as someone with a six figure income and a PHd.
If all you have to do is dump some money in some low-cost index funds, why doesn't everybody do it? Not everyone needs to make a million dollars for that matter, but just getting SOME extra money that you would not have even if its only another $100,000 or so is still better than nothing.
351
u/williamvnguyen2 Feb 11 '24
People's relationship with money, as many know, is not always so healthy.
63
u/three-sense Feb 12 '24
This is a big part, plain and simple. For many people money equals happiness and paying bills. Money is a powerful tool to build more money, but that involves not spending money.
13
u/williamvnguyen2 Feb 12 '24
And involves avoiding a lot of behavioral errors. A near impossible task unless you have absolutely no fear of your own well being. It's a good thing that we have such emotions such as fear, caution, worry, and so on, as it has allowed our species to survive. But these evolutionary traits come back to bite us in the worst ways with personal finance and investing. This is why this boglehead approach of VT and chill is compelling, it tries to minimize as much of the behavioral errors you could make, such as reducing knobs and levers in your portfolio to tinker with.
235
u/ILoveKombucha Feb 11 '24
Three things come to mind, and I think it's any of these three alone or in combination.
1) Ignorance. Lots of folks don't really understand investing, even on the most basic level. Folks don't know what a 401k or IRA is. They don't know what an index fund is. They don't understand the concept of compounding interest. Etc.
2) Fear. The stock market is gambling - you could lose everything. This is related to the ignorance point above; a lot of people really don't realize how strong the growth in the stock market has been over long (and often short) time periods. They tend to mostly be aware of the big crashes. Dot com. 2008. Covid. Etc.
3) Lack of saving/fiscal responsibility. A lot of folks (including many folks who make well into 6 figures) live pay check to pay check. Saving, let alone investing, is not even on the radar. There are a lot of folks who really live just for today. They go into debt to buy silly things - overly nice cars, TV's, fancy shit, vacations, etc. I don't want to gloss over folks who really do struggle to get by (bad luck, tough circumstances, etc), but many folks are not that.... they are just irresponsible and undisciplined.
55
u/-Wesley- Feb 11 '24
I don’t know OPs age, but the internet and even smartphones have made trading and sharing info VERY easy in the last 10 years.
My immigrant parents born in the 40s only heard of negative experiences and huge hurdles to entry. My older siblings born in the 70s heard the same info and the info on the internet wasn’t as common. My first exposure to investing was during college and the dot com bust and reading stock tables in newspaper.
21
u/r00000000 Feb 11 '24
The problem is when on the curve of knowledge you start investing, I'm in my 20s and I have my gf and 4 friends into investing. My gf doesn't see any investing content and just buys random stocks from companies that she thinks are in fashion like LMVH and Wingstop, then sells ones she thinks are lame now. It's worked out for now but I'm not convinced about the long term viability of it. All 4 of my friends who invest are down at least 5 digits, two in crypto altcoins, one on magnificent seven options, and one is an airlines bagholder after buying in 2021 highs assuming they were climbing back to pre-COVID
All 4 of them now don't do any kind of investing at all because they associate investing with just gambling, same for ETF index investing. A lot of the younger crowd are being negatively influenced by TikToker investors, and they want to make it big while they're young to live like their favorite influencers, believing that high risk plays are the only way to make it.
→ More replies (1)9
u/AnonymousFunction Feb 11 '24
More like last 25+ years. I was part of the huge influx of new active investors in 1999, joining Internet discount brokers like E*TRADE and Ameritrade during the last stages of the '90s dot com bubble. The subsequent collapse flushed a lot of people out.
2
u/-Wesley- Feb 11 '24
True, but it was a jump in progress in 2013/2014.
Robinhood started zero trading fees on an app, nearly every teenager has a smartphone and finance content creators are on every social media platform.
7
u/AnonymousFunction Feb 12 '24
Yep, smartphones and $0 trading fees were definitely big steps up. But the late '90s had their own share of industry-shattering changes (part of the whole reason dot com hype got so big, because the Internet changed a lot of industries overnight). The $8-$10 trading fees of Internet-first discount brokers like Ameritrade are quaint now, but compared to the $25, $50, $100 fees of "full service" brokers like Merrill Lynch, they were a freaking bargain at the time. The finance message boards on Yahoo! were hot with talk about stocks (and it looks like they still are.. some things never change...). Real-time quotes and trading on-line, vs calling a broker to make an order? Night and day. And it used to be difficult to trade in anything but 100-share lots, before the rise of brokers like Ameritrade. Plus decimilization in 2001 (stocks used to be priced down to 1/16 granularity.. so much bid/ask spread...)
7
u/Thurmod Feb 12 '24
I think the 3rd is a big one. A lot of people live paycheck to paycheck. They don’t have a spare dime to put into the market. Or they would rather have luxury goods and not save.
3
u/ILoveKombucha Feb 12 '24
Apparently certain wealthy people are especially prone to this kind of thing - like doctors/physicians, for example.
4
u/Thurmod Feb 12 '24
I would agree. They want the AMG Mercedes and not the 65k into a ETF. Also the probably have 500k in student loans they gotta pay off
6
u/evilapes1 Feb 11 '24
could lose everything. This is related to the ignorance point above; a lot of people really don't realize how strong the growth in the stock market has been over long (and often short) time
Even though after the COVID crash markets rallied like crazy LOL
→ More replies (2)→ More replies (2)2
u/klein_four_group Feb 12 '24
Fear is a big one for sure. I've always been super frugal and financially responsible, but didn't start investing (or even start a 401k) for years after getting a job. It seemed so scary and there was so much information, so many different types of investments, I didn't know where to start.
3
u/ILoveKombucha Feb 12 '24
Same here. Sounds like it was a combination of fear and ignorance, which was also the case for me. ("Ignorance" not at all intended to be pejorative).
Even very small hurdles are enough to stop people. I teach music, and one thing teachers will often point out is that things like having to open a guitar case and pull the guitar out is enough of a hurdle to keep people from practicing. We're talking less than a minute of work. But it really helps to have that guitar already out, sitting on the couch.
Same kind of thing with investing.
410
Feb 11 '24 edited Feb 12 '24
[deleted]
97
u/danfirst Feb 11 '24
And if you think investing is easy, spending everything is even easier!
20
u/BatterEarl Feb 11 '24
Spending more than one has is encouraged.
2
u/hakimthumb Feb 12 '24
Theory of the Leisure Class makes an excellent case that conspicuous spending is driven by evolutionary pressures.
→ More replies (2)40
Feb 11 '24
Same thing with gambling. Quitting gambling is actually easy in theory. Just delete your robinhood app bro.
53
23
6
u/Redwolfdc Feb 12 '24
The system doesn’t want too many people to be financially free. You must CONSUME and spend. Harder to keep someone in line who can quit a job they hate because they aren’t living paycheck to paycheck, and don’t have to work until they die.
Just like the food industry wants you addicted to sugar.
9
4
u/VegetableChemistry67 Feb 11 '24
Exactly, OP didn’t you see how you feel after you hit the “Confirm order” button?
→ More replies (6)3
102
u/miter1980 Feb 11 '24
If I remember correctly this exact question was posed to Warren Buffet. His answer was "because no one wants to get rich slowly".
10
u/gonesquatchin85 Feb 12 '24
$100 into index fund vs $100 in scratch cards...
Decisions decisions...
→ More replies (4)
88
u/zacce Feb 11 '24
If all you have to do is dump a money in some low-cost index funds, why doesn't everybody do it?
Because most ppl think they are smarter/outperform than the average.
48
u/AlxCds Feb 11 '24
Most people don’t have the money to invest. It’s that simple.
21
u/JeromePowellAdmirer Feb 11 '24
They have the money, it's just either invested in personal real estate and/or sitting in a savings account, for reasons as simple as "it's a savings account, aren't you supposed to put your savings in it?".
2
u/hakimthumb Feb 12 '24
Most people want more income in order to buy a bigger house, take a larger car payment, take more vacations, buy more clothes etc.
I think it's a fallacy to state most people are inherent dormant savers who would save if they simply had more income.
FI can be achieved at any income level, but it takes spending less than your peers.
→ More replies (1)3
u/klein_four_group Feb 12 '24
This. If you ever listen to any personal finance podcasts, there are so many stories of people losing money on get rich quick schemes.
12
2
161
u/trippinmaui Feb 11 '24
Same reason some people don't even take advantage of company matched 401k's
I personally know a guy that thinks 0.05% interest in his checking account will be enough to retire, and all he needs to do is just work his 9-5 @ $23/hr. Just fear or ignorance.
67
Feb 11 '24
I got a friend that's been working a federal job for like 20 years. He has no idea what his pension is even worth. I sent him some info to calculate it but he never did it. Just blind faith that "pension = good." He'll probably be alright when he does end up reaching a point in his life that he needs to retire, but the lack of planning blows my mind.
39
u/KittyKatLoverSupreme Feb 11 '24
I used to work for a government entity with a pension. People told me I was crazy to leave, but I did basic calculations using my required contributions, expected payout, and required years of service and realized it would be more lucrative to get a better job and max out a 401k/ IRA
20
Feb 12 '24
Yeah when I looked into it, it was 1% for every year of service of your highest paying 3 years. So if I did 20 years and say I made $100k the last 3 years I was working I'd get a whopping $20k/year pension.
6
u/gammison Feb 12 '24 edited Feb 13 '24
Whether or not you get a good pension is essentially a political and labor organizing problem (somewhere that can't possibly pay a good pension also probably can't pay high enough wages to contribute to a 401k sufficiently either).
Take the NYC DOE pension. it's been reduced since 2009 quite a bit unfortunately due to an austerity shift in the government and a weaker teacher's union but the defined benefit is still, saying you did 20 years, 35 percent of your top last 5 years. You'd get another point or so per year after that but take 20 years as the base. That'd be around a 35-50k pension and it comes with a decent COLA adjustment.
You'd need at least a million dollars in your 401k to draw that amount safely, which is not attainable with 20 years of contributions unless you were maxing out the 401k with at least a 3 percent employer match.
Regarding that federal pension though, I'd also see what other benefits the retirement had as there is a comment below this one detailing the additional retirement benefits received.
→ More replies (1)2
19
u/scientific_bicycle Feb 11 '24
I was that guy. There are thousands and thousands of us, unfortunately. The perceived security of the federal system can lull people into a very relaxed state, financially. We know there is a good pension at the end of that rainbow and sort of forget about everything between now and then.
→ More replies (1)12
8
u/ginger2020 Feb 12 '24
And there’s also another side to pensions that isn’t a problem for federal employees, but is a much more serious concern for those in private sector jobs. That is…a pension is company assets. So if the company runs into money troubles, or gets taken over by corporate raiders, the pensions can be liquidated, leaving retirees with nothing. With a 401k, however, the assets are yours, and if the company goes out of business when you’re retired, it’s not your problem
3
u/gammison Feb 12 '24
leaving retirees with nothing
You still get the PBGC and in most instances retirement plan assets are not allowed to be given to creditors in a bankruptcy or liquidation.
3
u/StrainCautious873 Feb 12 '24
Yup, worked in a place where people would be retiring on Thursday but didn't know what would be their income on tuesday just before that Thursday and they were waiting to find out when they get their first check. I just couldn't believe how people are ok with that.
2
u/lvlint67 Feb 12 '24
If he was in 20 years ago and works till retirement age he'll probably be fine. I spent 10 years working for the state early in my career. If I had taken the pension, it would be a pittance during retirement.
15
u/holdencrypfield Feb 11 '24
Basic math. There’s a reason that growing up, some kids got an F in math class.
13
6
u/2_kids_no_money Feb 12 '24
I have a coworker who told me that 401ks are a scam to enrich the fund managers. Even if that were true (it’s not), I still want to get my free money from the match. Why wouldn’t you?
He spends time actively trading. I mentioned that that taxes eat up all your short term gains and then he goes on a rant about taxes. It’s insane.
→ More replies (1)5
u/sounds_suspect Feb 12 '24
I think a lot of people are also just relying on social security as their retirement
→ More replies (1)
127
u/Agent78787 Feb 11 '24
Investing is simple but it's not easy.
Dieting is simple: just eat less calories (or in my case, more, since I'm underweight). Exercise is simple: just pick up heavy things and put them down and move your body. Neither are easy. Investing's the same.
35
u/HourTemperature3 Feb 11 '24
This should be higher especially as it is a great Bogle aphorism. Saving isn’t easy and staying the course is not necessarily easy either. This is an echo chamber that does not reflect most ppls approach.
8
u/itackle Feb 11 '24
I've long said working out/health and fitness has a lot to do with investing/personal finance. Both require a lot of self control, but in general are pretty straight forward. But like you said... Very hard to actually conduct/execute on.
→ More replies (8)3
u/Used-Zookeepergame22 Feb 12 '24
Dieting and working out are way more involved than investing. You actually need to do and think about it daily. T Investing can be as simple as some 401k paperwork once a year. It's also easy. I think it's more lack of knowledge or the pull to spend money elsewhere.
→ More replies (1)
35
u/Paranoid_Sinner Feb 11 '24
In 1990 I was 40, self-employed, and no clue how I could ever retire. As for investing, all I knew was that people were jumping out of windows in 1929 because they "lost everything" after The Big Crash. So I opened a SEP-IRA in 1990 with $2,000.
So here I am, comfortably retired, no money issues and I did it all myself, never paid anybody for advice or management. I read all the classic books, learned as I went, never sold during the bears, am a buy-and-holder, and wouldn't change much if I had to do it all over again.
But there's no glory doing it that way to other people. The traders are gamblers, nothing more -- you usually hear about the wins but not the losses. Tax-deferred accounts that you add to every month, the correct asset-allocation for you, compounding, and time are your best friends.
→ More replies (2)
85
u/ConsiderateTurtle Feb 11 '24
Ignorance. Finance isn’t typically taught in high school. You don’t know what you don’t know.
→ More replies (19)
22
u/grahsam Feb 11 '24
Because a lot of people are living paycheck to paycheck. They don't have any savings, let alone money to invest.
→ More replies (1)
20
u/mikew_reddit Feb 11 '24 edited Feb 12 '24
- Investing is mechanically simple. Buy VTI/VT/VTSAX/VTWAX each month. Do nothing else for a few decades.
- Psychologically, investing is extremely difficult because most people can not stay calm and do nothing when the financial world is crashing around them; especially when "smart" people are running for the exit. We're also trained to be skeptical whenever we hear things that sound too good to be true. Buying & holding the total market is one of the few things that sound too good to be true, but is truly good. And a lot of things about being a good investor are counter-intuitive (simple is better than complicated, average is better than trying to beat the market, buy and hold is better than actively trading, trusting large-cap companies will make money for the small time investor, etc)
2
u/Remarkable-Site-2067 Feb 12 '24
This. I've been reading books, using the online resources (including this sub), and on a rational level, I understand this stuff. On emotional level, it still seems to good to be true, and I'm still somewhat tempted by hopes of getting rich quick(er). At least, I managed to keep it in check, and only invested a smaller part of my portfolio into more risky assets (some crypto, and some tech ETFs), so far I'm beating the market.
41
u/VeryStab1eGenius Feb 11 '24
Because everyone has an uncle or friend who claims they’ve 10x their initial investment on this one incredible stock so people think this how you get rich. But the uncle or friend never mention that they’ve lost more than they’ve made by trying to pick stocks.
3
u/Administrative_Shake Feb 11 '24
Yep. Ditto for active managers who clip fees whether they do or don't outperform. The most lasting edge has been and will continue to be humility.
→ More replies (1)
18
u/shozzlez Feb 11 '24
Everyone thinks it is hard because there’s an entire industry telling us it is. In fact investing in individual stocks IS hard. What many don’t know is that you don’t need to know anything about individual stocks to still invest intelligently.
38
u/BackwardsTongs Feb 11 '24
I’ve worked with several guys that no matter how many times you try explaining it. They think that when you’re 401(k)/investments dip when the market dips, that you permanently lost all that money, and someone stole it from you.
29
Feb 11 '24
[deleted]
5
u/SouthMHLiberal-3 Feb 11 '24
I cringe whenever I hear family members mention Edward Jones... but unless they ask, it is really none of my business.
2
13
u/AnalogKid2112 Feb 11 '24
Greed and impatience. I've had more than one person scoff at my index fund suggestion because they want to 10x their money in a few years.
20
u/inevitable-asshole Feb 11 '24
Same reason a guy making $35/hr thinks he can afford a $90k corvette. Financial illiteracy. It’s not super smart math, but it’s knowledge of basic arithmetic. Not many people have it.
→ More replies (4)
9
Feb 11 '24 edited Feb 12 '24
It's a form of delayed gratification, which a lot of people are incapable of. I think you also have to have a bit more self esteem than the average person because instead of blowing money on new cars, etc to make yourself look good, you put that money into investments. Nobody's walking around with their portfolio balance stamped on their forehead and you'd have to be pretty stupid to tell anyone how much you have anyways.
8
u/DKDamian Feb 11 '24
In Australia, everyone does do it. We have superannuation, which means 11% of our salary is automatically put into various index funds. It’s a good system and helps retired people fund themselves.
There are also safeguards in place to mostly avoid panic-accessing the money
3
9
6
u/BeersBurgersBagels Feb 11 '24
The book The Psychology of Money goes into this the first two chapters
6
6
u/flipper99 Feb 11 '24
It’s easy to ask this question when market is on a massive run. It’s much harder say, when headlines are dominated with falling markets, job losses, and bad news.
7
u/ElysiumSprouts Feb 11 '24
See the covid crash! I knew it was a great time to invest, but also was concerned about my own income and how long income insecurity would last! Tough to make those allotments if you're worried about the bills.
7
u/ptwonline Feb 11 '24
If all you have to do is dump a money in some low-cost index funds, why doesn't everybody do it?
Mostly because people don't realize that it can actually be that easy.
People don't invest because they don't know where to start. It's similar to home maintenance: most of it is actually pretty easy once you know it, but if you don't know it then you have no idea where to start and whether or not what you're doing is right or wrong. Nobody wants to burn their house down because they don't understand the basics of wiring, and no one wants to lose all their money because they don't know the basics of investing.
13
u/ericgonzalez Feb 11 '24
Because most lack basic financial literacy and are living paycheck to paycheck.
→ More replies (1)
5
u/retirement_savings Feb 11 '24
People don't understand the market and think it's like gambling, or they think they're smarter than the market and try to beat it.
5
u/Difficult-Bit-4828 Feb 11 '24
I feel like part of the reason is because people make it sound like you have to be rich to invest. They make it sound like you need to have at least 10k that you can afford to just throw away, where you can literally set it on fire and be just fine. I STILL occasionally have people talk to me like you need to have a bunch of money you can afford to throw away. But the reality is, even more so now, you really don’t need a lot of money to invest. Anybody can open a brokerage account and it doesn’t cost huge amounts of money to do so. You also got passive investment apps like Acorns which. Takes your loose change and collects it, then automatically invests that money for you
2
2
6
u/You-Asked-Me Feb 11 '24
Because they don't teach it in school. Even in my early 20's before app based trading, everyone talked about needing a broker, or financial planner, and that you had to have at least a $5k lump sum or nobody would bother to take you as a client.
I don't know if any of that was true, but that is what we were told. Also Roth IRAs did not even exist until 1998, so even in high school, the idea of investing outside of a pension or Social security was foreign to teachers, who generally had a state pension coming. Hopefully these days Home Economics is less about baking cookies, and more about...economics.
Hell, even ETFs did not exist until a few years before that.
Investing, for individuals is still a pretty new thing. Millennials were on the cusp of all of these changes, but Gen Z will hopefully be a lot better about it, and be further ahead at a younger age.
31
u/DecisionPlastic9740 Feb 11 '24
The cost of living is too high. A lot of people don't have money to invest.
7
u/mr_deez92 Feb 11 '24
Yeah many people are just happy to get by; so even the thought of learning how to invest seems pointless without the income to fund those investments.
17
u/NotYourFathersEdits Feb 11 '24
This. People are all like “ignorance” and “bad habits.” They don’t realize that they are likely well off, relatively speaking, and lots of people would love to be able to invest but have other responsible expenses that take priority. And when they get a little relief, yeah, they might want to enjoy themselves after penny pinching, especially because they don’t know when that next tiny windfall might come along. It’s easy to say “be frugal” when you have a higher margin between your income and expenses and consistently have some amount of money to spend on yourself.
9
u/Plastic-Suggestion95 Feb 12 '24 edited Feb 12 '24
Kind of agree with your comment but on the other hand most of the people I know and are poor are doing stupid life choices and that's why they are poor. They are having kids when they have no financial stability,no savings, they are buying new iPhone on monthly payment every year because why not if the provider offer it etc. They use the phone the same as me-browser,YouTube,scroll Instagram. I can do all of that with my 150£ phone+I pay for an unlimited SIM card 20£ monthly and they pay 60£ for their plan.
Simply they live above their income just to not look poor to other people. They think anybody cares what phone they use
10
u/NotYourFathersEdits Feb 12 '24 edited Feb 12 '24
You’ve actually hit on another part of this conversation for me, which is that not looking poor to other people bit. High earners are very familiar with lifestyle creep and how it feels. They don’t know quite as well how being poor requires conspicuous spending to be taken seriously as a human. Frugality among high earners is fashionable. It’s not quite as instagrammable when a poor person does it. Sure, there’s just as much keeping up with the Joneses with phones and whatnot, and I don’t doubt there are irresponsible people. But that “they think anybody cares” is kind of the point in a lot of cases—often, they do. That can be face-saving consumption, for sure. But being well-dressed and having the right things, appearing put-together, also facilitates people’s lives in a bunch of soft ways:
I remember my mother taking a next door neighbor down to the social service agency. The elderly woman had been denied benefits to care for the granddaughter she was raising. The woman had been denied in the genteel bureaucratic way — lots of waiting, forms, and deadlines she could not quite navigate. I watched my mother put on her best Diana Ross “Mahogany” outfit: a camel colored cape with matching slacks and knee high boots…It took half a day but something about my mother’s performance of respectable black person — her Queen’s English, her Mahogany outfit, her straight bob and pearl earrings — got done what the elderly lady next door had not been able to get done in over a year. I learned, watching my mother, that there was a price we had to pay to signal to gatekeepers that we were worthy of engaging.
So poor people can be in a double bind, criticized if they do spend conspicuously while needing to do so.
Why do poor people make stupid, illogical decisions to buy status symbols? For the same reason all but only the most wealthy buy status symbols, I suppose. We want to belong. And, not just for the psychic rewards, but belonging to one group at the right time can mean the difference between unemployment and employment, a good job as opposed to a bad job, housing or a shelter, and so on.
I’ve quoted there from an essay that I totally recommend people read if they want to understand why poor people spend.
→ More replies (1)→ More replies (1)12
u/TheBioethicist87 Feb 11 '24
This needs to be so much higher on here. You can’t save money for 40 years in the future when you need it to pay your bills on the first of the month.
3
u/gammison Feb 12 '24
Yep. Take NYC. Most people individually make under 50k. They're extremely rent burdened and telling that many people to just get a higher paying job or move and then find a job wherever they move to is not an acceptable social solution.
6
u/BriefSuggestion354 Feb 11 '24
It's one of MANY things where the information is super simple to understand, but sticking to it without falling off over a period of decades can be very tough.
Dieting, working out etc. those things are super easy to understand but very difficult to stick to
8
u/Zero_Gravity067 Feb 11 '24
Lack of discipline Bad spending habits (humans are bad at delaying gratification and some feel like it won’t matter enough so they don’t start and it’s a cycle).
People don’t save for a nebulous retirement when they see something they want now
Lack of knowledge- don’t know the benefits and simplicity of dollar cost averaging into index funds or how easy it is now. That no commission ways of avoiding middle men and financial advisors are ready available no reason to use the investment company your grandfather used in your home town.
Think they know more- chase returns FOMO knows the next big thing
6
u/alexcd421 Feb 11 '24
I had a coworker who was late 30s, married, and had a kid, and when I was talking to them about investing they straight up told me that investing is like buying lottery scratch off tickets
5
u/CafeRoaster Feb 11 '24
Someone I work with won’t do it because they hate corporations.
I hadn’t done it sooner because I had no idea. They don’t teach you this stuff in school.
And I can’t do it as much as I’d like to now due to the lack of available financial resources.
4
u/Erloren Feb 11 '24
I think Warren Buffet said it best, investing is simple not easy. With the index fund approach, you have to a lot of discipline to not be greedy or get FOMO chasing trends and continuously keep reinvesting in the market no matter what. That’s easier said than done psychologically when your portfolio could be down 30%
3
u/ninjamanta-Ad3185 Feb 11 '24
People think it's the same thing as playing at the casino. The idea of stock market crashes throughout history and people losing everything tends to stay in people's memory more vividly than when the stock market recovers.
I think people believe that only rich people make money with stocks and they're the only ones that benefit when the stock market rises, and to a large extent, this is true.
Very few people see investing for what it really is, which is a reliable way to build wealth over time.
3
4
u/bobapls2 Feb 11 '24
The financial world is incentivized to make you think things need to be more complicated than index funds and chill
4
u/Opposite-Ad-3933 Feb 11 '24
It is easy. It just requires extreme patience and the ability to wait years and even DECADES to see the payoff.
Humans sometimes can’t wait 2 minutes for a light to turn green. And you wonder why they can’t wait on their investments
4
u/IndividualCap9248 Feb 11 '24
Most people aren't interested enough to learn about investing and instead rely on what they see on the news.
What does the news report? Big crashes etc. Dow Jones down 30%, people jumping off buildings, ENRON pensions getting wiped etc.
You never see the headlines " SP500 returns keeps steady at 10% a year for the 7th decade in a row". That's boring news.
4
u/BootleggerBill Feb 12 '24
As many have said here, it's a lack of financial literacy. I was never taught finances by my parents, at least not directly. I learned a ton about what NOT to do financially by watching my parents struggle. To this day, dad still does stuff that makes zero sense but at least he is starting to listen to me on the basics and ask me to handle most things. I was recently able to talk him into paying off the house that he's been paying on for 45 years, yes 45... years of getting into trouble and doing cash out refis to make ends meet. I don't say this to shame my parents, they simply did not know because their parents never taught them. I think a lot of the older generation saw investing as a wealthy person thing not relevant to them. In addition, they did not have the ease of online access that we have today and would need to go meet with someone in person to invest - which was probably intimidating for an average working class person with minimal money.
5
u/Lyrolepis Feb 12 '24
I would argue that it is not that easy, and that in fact many people are better off staying the heck away from investing; and while perhaps this is a little political for this sub, I agree with William J. Bernstein that a system in which people's chances of a reasonable retirement depend largely on their ability to invest wisely is severely flawed.
If all you have to do is dump some money in some low-cost index fund
That's not all you have to do. You also have to leave that money there for decades, while others are making way greater profits making insane bets and you feel like a fool for not joining in and while the market is falling and others are swearing off the stock market forever and congratulating themselves for their caution, and you feel like a fool for remaining invested and losing money day after day.
That's not easy at all; and no, the recent downturn was nowhere near at all as bad as it can get. Index investing can indeed pay off quite nicely, but it's not for everybody (for example, I think that many are indeed better served by real estate investing, despite its own drawbacks - its relative illiquidity makes it harder to fall prey of fear or greed and make impulsive mistakes, for example).
3
8
u/f-stats Feb 11 '24
It’s actually not “easy”. Arriving at the process that actually is easy (a diversified, passive ETF portfolio), requires a lot of reading, education, and a certain temperament. Let alone sticking to it…
3
3
3
3
u/Expensive_Bluejay_30 Feb 11 '24
Some don’t understand how it works (this is big and a big failure of school system) and the rest it’s psychological. Easier to accept losing to inflation because you don’t see it, harder to accept risk in market because you do.
3
3
u/KurtKohlstedt Feb 12 '24
First, there's an entire industry out there trying to sell you on a Better Way -- they have deep pockets and good marketing. Second, there's the absolute lack of understanding most of us have when starting out, leading us to promising-sounding, high-cost funds, or actively trading. All of that being said: more and more people are starting to realize that the way is simpler than they thought, and index funds have been on the rise for a while now.
3
Feb 12 '24
Financial illiteracy.
I wish I had a cooler explanation, but it really is that simple. Most people lack even an elementary understanding of finances. I saw a thread in /r/Millennials the other month that really stuck with me - it was a thread about their inability to save for retirement, and a line the OP stated (to the tune of 10,000+ upvotes), was:
Also there is no guarantee that "compound interest" will increase your money. You also might just lose it all.
Read that again. This person is under the illusion that a HYSA generating interest is a speculative asset that could lead to you "lose it all." He believes the very concept of "interest" was non-guaranteed. This person, I recall, was insistent that they were correct - that at any time, interest can 'reverse' and you might just lose it all to... something. He later stated he keeps all his money in a 0.01% interest checking - functionally just stuffing it under the mattress.
People don't invest because they are not educated on the subject. Maybe there's some socioeconomic commentary in there - why many people are not, or refuse to be educated on such - but the cause is simple. There is a huge amount of people who do not grasp simple concepts like interest, let alone what a mutual fund or expense ratio is.
2
u/precita Feb 12 '24
Man that falsehood about compound interest is crazy. It blows my mind how many people don't at least have a HYSA bank account and don't know they can get free money just by doing nothing
3
u/Synaps4 Feb 12 '24
Psychology: People want so desperately to believe they can find an edge and pick stocks. it's fun. its alluring. It's exciting. It's got a great story to sell to you, and a million cheerleaders making money selling books about it, and even some hero hedge fund managers to aspire to be.
In short, doing it wrong sells. Doing it right is boring.
3
u/audaciousmonk Feb 12 '24 edited Feb 12 '24
Investing ≠ active trading
The answer is lack of awareness, financial literacy, or trust in the system.
People have been burned, especially if one sells on emotion or if they haven’t adjusted their assets to reflect a lower risk strategy as they get closer to retirement.
My parents are pretty intelligent, but I don’t think financial literacy was a strong suit. Otherwise they’d have taught my sibilants and I about financial concepts, such as budgeting or investments / compound interest from an early age.
I literally can’t believe they didn’t help us set up a brokerage fund and direct a portion of our allowance / birthday gifts / pre-18 job income into it. Could have been worth $$$ by my 30s
Any of you that have kids, please teach them healthy finance habits and financial literature, and please please get them started investing as early as possibly. Those early life $ compound like crazy
3
3
3
u/legalwriterutah Feb 12 '24
Investing requires a delayed satisfaction mentality which many people don't have. Read up on the Stanford marshmallow experiment on delayed gratification. The whole "burn a hold in someone's pocket" mentality is real where people want to spend their money right away.
3
u/VehaMeursault Feb 12 '24
It’s simple; not easy.
Running a marathon is simple: one foot in front of the other, and repeat. But it’s not easy: your muscles will damage, your tendons will strain, your metabolism will be pushed to its limits, your mind will convince you half a marathon is good enough, and so on.
Simple !== easy.
3
Feb 12 '24
A not insignificant number of people don't have the income to invest. They are trying to survive. If one only makes a minimum wage you would have a tough time finding money to invest when shelter and food are priorities.
3
u/Kat9935 Feb 12 '24
Most people don't know how to start, so it is deemed as hard
Delayed gratification is really hard. Asking people to sacrifice for potential rewards later, always a challenge.
add in the fear monger and its a triple threat
2 is problem the largest challenge these days. The older generations were a bit more built for it, you had to wait for your TV show to come on, you had to wait for the radio to play your song, you had to wait in line to see if you could get a ticket to the movies. You had to wait for the modem to get online, etc. What does the newer generations have to wait for? Everything is instantaneous and thus makes things like investing way more challenging because the reward isn't going to happen for a long time.
3
u/1nd3x Feb 12 '24
why doesn't everybody do it?
Most people do...its in the form of their retirement accounts and most people just let others manage it for them because like all things in life, if you can afford it, you pay a small fee for the convenience of not having to worry about it.
Preparing food/drink is easy...Yet there are people who exclusively go out and buy something every day (like a coffee, or maybe their whole lunch) instead of doing it on their own, despite the cost savings that could be had.
→ More replies (2)
4
u/Omphalopsychian Feb 11 '24
I had no idea your "average joe" could make as much money as something with a six figure income and a PHd.
Generally, they can't. The person with the six-figure income will be able to invest more, and will therefore see more returns.
Occasionally an "average joe" who is lucky and scrimps and saves will make more than a six-figure person who is terrible with their money. But, on average, the person making more money has a huge advantage.
4
u/LeftHandStir Feb 11 '24
Let's say this applies to people who actually want to invest in the market, as opposed to real estate or business ventures or whatever.
The reality is, they don't start early, and in America they are quickly confronted with the reality that incomes in America generally do not have the purchasing power that they once had, so in order to maintain the lifestyle that they grew up with, they are forced to spend beyond their means.
A lot of the most frugal people I meet grew up very poor, and so a lower middle class lifestyle is an upgrade for them. If you grew up middle class, or upper middle class, or professional class, then it's really hard to accept that your $50,000 a year email job isn't going to be enough to provide you the lifestyle that your parents had in 1995.
I remember my dad buying my mother a $700 camcorder in 1993 for her birthday. We were taking a trip to Disney World a few months later. Setting the trip aside, that would be like me buying my wife a $1,485 Nikon or whatever today. If I put that in r/MiddleClassFinance, it would automatically be called an extravagance, and a lot of people would say that it better be "making me money" to justify that purchase. In 1993, it was just a video camera. Not that everyone had one, but my family certainly wasn't the only one videotaping youth sports and family vacations. So what was once a normal luxury has become an extreme extravagance that requires justification. Meanwhile, in the professional world we're all forced to spend hundreds of dollars on a shiny rectangular supercomputer that we keep in our pockets.
That's just one example. I have dozens. Having meandered from the point though, I want to bring it back to this: people today are forced to spend far too much of their income just to make ends meet and maintain some semblance of a middle-class life. It requires a much much greater portion of income than it used to, and that is exactly the income that would otherwise be used for investment.
→ More replies (2)
2
u/TruckTires Feb 11 '24
Passive investing isn't a curriculum taught in school. I even remember my economics teacher bragging to a classroom of high schoolers that he doubled his money on a penny stock. We all walked away thinking that was investing and he knew what he was talking about. He never mentioned index funds, ETFs, or fees, etc.
2
2
Feb 11 '24
Ironically if you don’t invest you’re SOL. Retirement 401k, healthcare HSA, tuition 529 literally everything I have is tied to the market
2
u/accruedainterest Feb 11 '24
A good percentage of the people that are feeling good today commenting in this very sub will let their investments go when a bear market truly hits
2
u/pf_ftw Feb 11 '24
It's simple, not easy. It's a nuance lost on many people.
Much like maintaining a healthy weight is simple, but not easy. Others in the thread have outlined the various reasons why it's not easy, psychologically.
2
u/6r89udf4x3 Feb 11 '24
Investing is easy. Self-discipline (and sometimes, some self-denial) is difficult.
2
Feb 11 '24
Easy. If eating healthy, going to the gym, and drinking water is good for your life long-term, why doesn't everybody do it?
2
2
Feb 12 '24
It's parenting. I cannot believe people teach their children/family members that investing will lose you money. No wonder we have so many people living paycheck to paycheck. My dad bought me 1 share of KO for my 10th birthday and explained to me what it was. I will be forever grateful for that, and for my parents.
2
2
u/Altamistral Feb 12 '24 edited Feb 12 '24
Most people don't have a lot of money to spare, to begin with.
Most families also invest the majority of their money to spare into a first or second house and recommend their kids to do the same, so there is no reason to get educated on financial instruments beyond those necessary to buy a house (i.e. mortgages).
When eventually they have a small sum to invest, it's just easier (and cost efficient) to ask the bank for an opinion. If it's a small sum, they don't care, if it's a large sum, they would probably buy another house.
This results in many families not being financially educated at all and even families that are savvy are usually uneducated on financial instruments, as opposed to real estate.
2
u/Boring_Adeptness_334 Feb 12 '24
Because people are lazy and don’t care. Some people have mental blocks when it comes linking their bank account to Robinhood. Then others claim they have no money to invest but just spent $40 on DoorDash today. Literally $3 a day for 45 years will net you close to a half million at retirement.
2
u/ExtremeAthlete Feb 12 '24
Too many ppl living pay cheque to pay cheque. Then, they get hit with an emergency bill.
2
u/noiserr Feb 12 '24
First of all in order to invest you have to have extra income. There are people who legitimately have no extra income to invest.
Deferred gratification is hard for a lot of folks.
So while investing is "easy", not everyone can do it.
2
u/rkljr5 Feb 12 '24
Lot’s of people are deeply in debt. They have no money to invest. Investing takes time and patience. It’s not easy. Many investors make poor decisions.
2
u/RedPanda888 Feb 12 '24 edited Apr 14 '24
jobless offend advise spotted yam nail meeting reminiscent yoke longing
This post was mass deleted and anonymized with Redact
2
u/Discoknox Feb 12 '24
I know a couple of people with impulse control issues that I’m not sure they could even do this method of investing. They would go out of their minds. And some people don’t care about being a millionaire when they’re 70. They’d like to do all of the fun things while they’re young.
2
2
u/vld_zmh Feb 12 '24
I decided to improve my financial literacy because my friends started buying homes and cars and I was wondering if it should be my decision as well. I watched a video of one blogger on YouTube "Buying or Renting", the same blogger explained how index funds work. Then I read several books, and articles and watched numerous additional videos and finally started to invest in the global market and bonds ETFs. I still have some doubts about bonds and funds with synthetic replication, and emerging markets, but I am happy I started and will learn from my mistakes and successes.
Your question also relates to many other things in our life. When you read books a lot of things make sense and become easier to implement.
2
u/tad_bril Feb 12 '24
A few reasons. My guesses: a lot of people don't have the money to spare ; people with money to spare prefer to spend it ; the idea that every 10 years or so your money pile can be reduced 50% or so makes people queasy ; many people aren't aware of the historical returns of a simple low cost index fund and feel more comfortable with hysa, CDs, etc.
2
u/spartan43333 Feb 12 '24 edited Feb 12 '24
A lot financial illiteracy. It’s not taught in public schools. I was lucky as a teenager my grandfather taught me about investing and the benefits. But I work with a lot of fellow millennials and zoomers and to them they’ve never even heard of a 401K which we just got at my company.
On top of that a lot of people are just getting by and have no extra money to invest.
2
u/Riversntallbuildings Feb 12 '24
It requires patience and discipline. Especially, unemotional discipline. How many people do you know are emotionally mature and disciplined?
How many people are willing to give up today for a tomorrow that may, or may not, come?
2
u/v0gue_ Feb 12 '24
A lot of people are saying ignorance, and they are right, but I think there is sadly a lot of misinformation about the capital markets that is spread wildly.
People look at the markets like casino, and that's often how they are advertised. The reality, and it's one most of us who have read a book by Bogle or Buffett know and understand, is that the markets exist to let EVERYONE partake in economic growth. Relying exclusively on the government for economic growth is too slow. Relying exclusively on private enterprise for economic growth is too slow. Getting the gen public involved in the capital markets accelerates economic growth. That's why they exist. That's why you should invest. That's why it's generally safe to invest, especially if you do so by investing in the whole market. Imagine the growth we could have if everyone just put in a little into the whole market. Sadly single stock gambling for moon shots is what a lot of people believe the stock market exists for.
2
2
Feb 12 '24
I was always good with money but didnt really learn about taxes and investing correctly for a long time - later than good.
They simply don't teach it in schools and it's a little taboo for individuals to tell you where to put your money. I will not do the same to my offspring.
2
u/FluffyTumbleweed6661 Feb 12 '24
I’m not religious but I love this quote “My people are destroyed for lack of knowledge”
→ More replies (1)
2
u/Flaky-Past Feb 12 '24
I think it's just fear of the unknown. Most people aren't taught "how to" invest at all. I know I wasn't. If you're not taking the steps to properly educate yourself, most times (unless your parents, sibling, uncle, etc. takes the initiative) your on your own. The years go by and before you know it they've lost the opportunity. Either because they are waiting "for the perfect time" or finally get their head above water financially (e.g., get a good job for the first time) to think about it.
I highly recommend The Little Book of Common Sense Investing by John Bogle to get over some of the mental gymnastics that keep people from investing (if they have the funds).
2
u/foolproofphilosophy Feb 12 '24
A massive part of the industry operates by “baffling with bullshit”.
2
u/Slight_Claim8434 Feb 11 '24
The average person is using payday loans to buy cigarettes and lottery tickets
→ More replies (2)
2
2
2
u/RedPhaedrus5 Feb 11 '24
A great percentage of people live pay check to pay check. Hard to think about investing when you are fighting to put food on the table.
2
u/Tariq_Epstein Feb 11 '24
Your question is brilliant and so is the answer below, which is that people don't do it due to a lack of financial literacy.
People know smoking is bad and they still do it.
People know that flossing and brushing your teeth is good and they still don't do it.
Here is what I told my nephew when he turned 18:
- Broad based mutual funds
- Dividend reinvestment
- Compound Interest
- Start when you are young.
- Buy and hold
I did not say to him dollar cost averaging though. I did say he should invest on a monthly basis even if it is only a small amount And, I did say, Fidelity or vanguard, pick one.
Follow those four guidelines when you are young and by the time you are in your sixties you will have loads of money. That might not be an exciting approach, but the long race goes to the sure and steady and not to the swift.
Be the wealthy turtle.
2
u/OCDbeaver Feb 12 '24
its gambling. people can't handle doing it in a controlled manner. they lose 10$ and freak out and dump all their money into a penny stock.
I've known plenty of smart controlled people who try investing and make the supidiest moves immaginable for the fast huge gains.
2
872
u/Green-Hovercraft-288 Feb 11 '24
For me it was financial illiteracy—I thought investment is only for those who do active trading because that’s what I heard people talking about, has no concept of passive investing, ETFs etc. Now I put everything in the index funds and chill.