3 Reasons Why People Don’t Invest

Photo by Fabian Blank on Unsplash

Over the years of investing money in the stock market, I have heard positive reactions in my environment but also critical sounds and even negative responses on investing.

While I am convinced that conducting the right investments can be tremendously beneficial for your wallet and I wish I had started sooner with investing, there is a healthy amount scepticism regarding this subject. Here I share with you three things that I most often hear as the blocking reasons for people who do not invest.

1. Investing Is For The Rich

You need a lot of money to invest to be able to make some money”. While this saying may be true if you want to make six-digit returns, for most investors this is definitely not the case.

You can already start investing with that 10, 50 or 100 Euros that you are not saving nor using for future expenses. Depending on the stock you are interested in, you can buy 1 to 100 or even more stocks with the mentioned amounts.

To illustrate, if you are interested in becoming part-owner of the multinational oil and gas company Royal Dutch Shell (ticker: RDSA), you could buy 9 shares in Shell for 97.83 Euros (at the closing price of 10.87 on 23 October 2020) that provides you with 0.13 Eurocents of dividend per share per quarter. This would lead to an annual 4.68 Euros for just owning the shares. At first hand, this may not sound much, but especially if you invest periodically and reinvest the dividends this could lead to significant numbers over the years.

2. Investing Is Gambling

I don’t want to gamble with my money”. Another thing that I hear often from my environment.

I understand that you do not want to gamble with your precious money, I wouldn’t want to do that either. In contrary to what people think investing is, it is not gambling. Investing is more nuanced than that.

There are several ways to invest in the stock market and gambling should definitely not be the approach. As the reputable Warren Buffet expressed to graduate students of the Colombia University’s Business School in 1994:

“Risk comes from not knowing what you’re doing”.

You can invest for different purposes and a few examples are investing for dividends or investing because you believe the stock value of the company you invest in will go up in the future. Or you may not have enough faith to put your money in just an individual company but you do believe the larger market will do better in the future. Then investing in an index fund e.g. the S&P 500, the Dow Jones or the AEX may be something more suitable for you.

Photo by Jp Valery on Unsplash

3. I Want To Sit On My Money

I enjoy seeing the balance on my savings account rise every month” or “I want to have the money just in case I need it”. These are expressions that I hear often as well and I admit that I also enjoy seeing the number on my savings account increase with every month that goes by and the comfort of being able to pay for anything that I want to purchase– to a certain extent.

It is good to be able to pay your fixed and variable costs such as your rent or mortgage, food, utility costs, clothes etc. and still being able to save money. It is also nice to know that you’re able to travel to the other side of the world and pay that trip with your money if and whenever you want to, while the money on your savings account accumulates with your savings interest. But have you thought about the money that you’re saving? I mean really thought about what is happening with that money?

If you calculate your purchase power over a certain period of time, you will start to understand.

Let’s do a calculation to illustrate what this means if you have a savings account with 10.000,40 Euros where you enjoy an annual savings interest rate of 0.01% at your bank and the country you’re in knows an annual inflation rate of 2%, which we will name situation A.

After 5 years, you would have 10.005,40 Euros on your savings account, whereas in the then prevailing economic situation your actual purchase power would be a little over 9.044,09 Euros. Frightening isn’t it? You look away from your saved money that you accumulated through hard-earned labour and after 5 years you can purchase almost 10% less than you could have 5 years ago. Discovering this, you may think your hard-earned money is working against you.

How about letting your money work for you? Like little farmers who produce for you.

I will illustrate an alternative situation B based on the earlier mentioned example of stocks in Shell where you purchased 920 shares for 10.000,40 Euros. After 5 years of dividend pay-out, you would have accumulated 12.392,40 Euros that would, under the same annual inflation, result in a purchasing power of 11.201,75 Euros. I believe many would say situation B is a more attractive outcome. Imagine what reinvesting the received dividends would result to.

Concluding

There are many misconceptions on the idea of investing. Although investing can be an exquisite world for the conscious investor, it is not for everyone. It is solely your decision whether to invest or not and this may depend on several factors, for example, if you can set money aside for a certain period of time, by taking into account your monthly bills, costs of living and future expenses.

Through elaborating on expressions and sounds of unease that I hear most often in my environment when talking about investing, I hope I’ve provided you with more insight on the idea of investing. As I mentioned earlier: I wish I had started sooner, but I’m glad I started investing in stocks at all.

Disclaimer
All investment/financial opinions expressed in this article are from the personal research and experience and are not intended as, and shall not be understood or construed as, financial advice. The content is intended to be used for informational and/or educational purposes only. It is very important to do your own analysis before making any investment based on your personal circumstances. Past performance is not a guarantee for future return or is it necessarily indicative for future performance. Keep in mind investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

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