I am by no means a professional investor or anything close to one. I do, however, take pride in professional “investment myth” busting. That said, I highly encourage you to use your judgement when reasoning through concepts. Do this with every piece of financial advice you hear or read.
Here in the Middle East, there’s a serious lack of literacy around investing. In fact, over the years I’ve collected a list of top excuses against investing. Yes, I dare to call them excuses, not reasons. In this post, we will go myth-busting. Yalla.
When you deposit your hard-earned money in a checking account and leave it there for years on end, the first thing I’m hoping is that you don’t try to justify why this is a “correct” decision.
Checking accounts were originally created to enable transactions, mainly using checks (hence, checking account). Today, with most transactions happening online anyway, there’s no need for checking accounts. I literally don’t have one. I have a standard savings account instead.
Every day that your money sits in a checking account, you miss out on serious interest earning capabilities. What you also do is lend your money to your bank for free, so they can invest it or lend it out. Yes, they do this. No, your money doesn’t really just sit there in your account untouched for when you need it.
Say a bank has a million customers like yourself. And say each of these customers deposits $100 in their accounts. How much money does the bank have? 1,000,000 x $100 = $100M. How much of these deposits do you think the bank actually stores in their enormous safe? Nowhere near $100M. Depending on the country, banks are typically required to back a portion of their deposits by actual cold hard cash. If you don’t believe me, read about fractional reserve banking.
So, as you can see, every time you put your money in a checking account you are saying “I’m happy to lend you money and watch while you invest it to make yourself decent profits”.
Open a savings account and keep all your savings in there until you learn more about other types of investments.
One of the biggest misconceptions out there is that you need a lot of money to start investing. With the plethora of investment platforms out there today, which I’ll eventually summarize on this blog, you can invest with as little as a couple of thousand dollars. You don’t have to be Donald Trump to invest. Rid yourself of this misconception, and prioritize educating yourself.
As we explained in the post about compounding, age is your #1 weapon when it comes to investing. The earlier you start, the richer you will be, and the faster you will reach your money goals. Read that post and it will all become clear to you. Get educated, and when you feel ready, make your first investment and don’t look back.
Investing can be complicated, yes. But so can cooking, and so can knitting. Ok, fine, I don’t really do either so I can’t really know. There is a shitload of information and “education” out there today about investing. It can be daunting and overwhelming.
In fact, the entire financial industry is built upon over-complicating what it is they do. This is done to justify the huge salaries and bonuses they get paid. This isn’t conspiracy theory. It’s fact. It’s what I would do if I were selling mutual funds. You see, the same thing happening in other industries too. Think consulting, advertising, fashion, etc.
The truth is, when taught correctly, investing can be quite simple. Continue reading through this blog and others like it and you’ll quickly start to develop your ability to cut through the crap and focus on what’s simple, logical, and effective.
Take a few hours to read through the content on this blog. If it sits well with you, start learning more from other sources, or start investing on your own.
I have to be honest. I was guilty of this for a long time and, sometimes, I still am! There’s a lot going on in life that we have to prioritize or pay attention to. Investing rarely climbs to the top of our “TODO” lists.
When you understand that your money can work for you, you will start treating investing like your productive clone: you delegate a lot to him/her, and smile when shit gets done as you didn’t have to put any effort in yourself (aside from learning, of course).
What image comes to mind if I ask you to picture an “investor”? A guy in a suit, with a worried look on his face, staring at a set of 6 computer screens (because 2 screens won’t cut it) scattered with complicated charts, fibonacci retracement patterns and… and… and. Am I right?
Investing doesn’t require this amount of daily babysitting. It distills down to when you put your money behind real economies that experience real long-term growth and understanding that, with time, when they grow you make profits. More profits than you would earn putting your money in a checking account.
Not all investment strategies require research, due diligence, and hours pouring over news articles and analyzing economic trends. In fact, the simplest and most effective strategies are what we call “passive” strategies. I’ll get to the details later, but for now…
Drop this misconception. Understand that with passive investing, you can spend very little time actually managing your investments, and still watch your net worth grow significantly.
Classic Middle East, huh? We are human. We fear what we don’t understand. Anytime money is made through misunderstood methods, we call it gambling, or a scam. Truth be told, what we call “risk” is actually called “volatility”. There is a big difference between the two.
The stock market contains every publicly listed company in an economy. If the stock market were gambling, there would be a scenario in which investors could simply lose everything in this “game”. Let’s look at the two ways you could lose in the stock market.
Both start with you making a decision to invest your money, and then:
In the first scenario, your emotional decision-making and insecurity caused you to make a premature decision to sell your investment at a loss. Had you held your ground and understood that the entire stock market cannot simply go to zero, you would have eventually been fine.
Wait, stocks do go to zero! Companies go bankrupt every day! Yes, individual companies do. The entire stock market, on the other hand, cannot go to zero. If it did, that would indicate every company in the stock market has gone bankrupt. The only time that would happen is if aliens were invading Earth. And if that were the case, I doubt we'd be throwing money at the alien (see what I did there?), would we?
Educate yourself about the stock market, and understand that in the grand scheme of things, and when you take a long-term view on investing, volatility and small hiccups along the way are nothing to worry about. As long as you’re covering your short-term financial needs properly, you can withstand medium-term volatility.
Covering your short-term needs so that you don’t screw up your long-term strategies is going to be one of the key themes in my advice. And this will help bust this myth. Again, when you cover your short-term needs and allow for flexibility in your life, you will be able to stick to your highly effective long-term financial investment strategies. Keep this in mind when developing your own investment strategy and while reading this blog. Rest assured, I’ll come back to this.
As you would have guessed by now, I’m big on financial education and literacy. For me, delegating something as important as my financial independence to someone I don’t really know isn’t the greatest of strategies. Sure, there may be some financial advisors out there who are unbiased and genuinely want what’s best for you. Most, don’t.
There is one major problem with these advisors: The majority are biased and have a natural conflict of interest. They typically work for a bank and their primary objective is getting you to invest in the latest and greatest investment product (usually a mutual fund) the bank has put together that year. Why? Well, because the bank pays their salaries and commissions from the fund’s fees. Wouldn’t you do the same if you were them?
Banks make money off fees. More often than not, the simplest and most effective financial advice is accompanied by very low fees. It’s not in a bank’s interest to sell you effective products that generate low profit margins. What they want is to sell you high-fee mutual funds that make them the most profit, and still give you decent performance. After all, “they hired seasoned professionals to manage these funds”. How could seasoned professionals go wrong?
Jokes aside, why should you even settle for “decent” performance if you can find better, simpler, and more profitable investment options?
Get educated, and go shopping. Not for Prada. I mean go shopping for financial advisors that can help you validate what you’ve been reading and educating yourself on so far. After all, the reason you’re on this blog and have made it this far is because you are serious about getting financially literate. So never treat one person or one source as the “ultimate source of truth”. I want you to question me as well. It will help us both get smarter and more honest about investing.
Money doesn’t buy happiness. Correct. What it does buy is financial independence. And when you buy financial independence, you are able to approach all of life’s decisions and obligations from a position of power. And that, ladies and gentlemen, allows you to focus on what truly makes you happy.
So, education + money = financial independence = happiness.