Our financial consultants have heard every reason under the sun why people choose not to invest but the fact remains that investing is not just a good idea but essential for our future financial wellbeing.
To put it bluntly, if you’re not investing, into a pension fund at the very least, you’re relying on what you may (or increasingly may not) receive from the state when you eventually stop working. And that is, without a doubt, going to mean lean times during retirement.
If you’re an investment sceptic, it’s probably for one of the reasons below. Let’s look at them one by one.
♦ I don’t invest because… I don’t have enough money
If you are really living on the breadline and/or have significant debt then you’re right, investing right now might not be for you – although you should put together a plan to take control of your situation. In many cases, however, the ‘I don’t have enough money’ excuse is more a question of priorities and wanting to spend the money you have on other things. Our consultants have found, almost without fail, by analysing a client’s budget and expenditure and making some simple lifestyle changes can free up money to save and invest. One recommendation is to prioritise saving as soon as you get paid, taking the money out of your current account immediately so it is out of temptation’s way.
♦ I don’t invest because… I don’t know how
One solution to this is to educate yourself. There are a wealth of online resources to teach yourself the investment basics. Start with ensuring that you properly understand the concepts of compound interest, risk, return and inflation then move on to learning about different investment strategies including risk diversification, dollar-cost averaging and buy and hold. These are the financial planning basics that everyone should know and understand but which are rarely taught in school.
The other easy solution to this problem is to seek the help of an expert. There is a prevailing attitude that financial planners are just for the rich, but this is absolutely not the case. Our consultants do advise some exceedingly wealthy clients, but they also assist many ordinary people earning far more modest salaries, from teachers to doctors and everything in between, with their financial planning.
♦ I don’t invest because… I’m too scared of losing money
It’s true that no investment is entirely risk-free. But consider this: even cash kept in a savings account earning low interest – a policy often perceived to be risk-free – can fall in real value due to inflation. While there are no absolute certainties when investing in the stock market, there are strategies which can protect your investments to a large degree.
One is saving over the long term. The S&P 500 index has returned a historic average return of around 10% since it began back in 1926 up to 2019. That’s a pretty solid track record. The golden rules to follow: invest over a long term horizon, diversify (there are off-the-shelf products that can do this for you) and take into account your tolerance to risk (get a financial adviser to assess this properly).
♦ I don’t invest because… I have decades before I will retire
Ah, that old chestnut! I can’t tell you how many forty somethings pass through our doors who subscribed to this view in their 20s and 30s only to arrive in their 40s realising that they now have only two decades until retirement. Time and compound interest are our greatest allies in building a nest egg large enough to support us in the manner to which we are accustomed when we stop working. The results of good money management habits take decades to become apparent so start saving and investing early.
♦ I don’t invest because… I don’t trust the financial services industry
It is true that the financial services industry has not always been a paragon of virtue and it is not hard to find evidence of past scandals and shady operators. However, the industry has cleaned up its act in recent years with increased regulation and a far more transparent approach. There are many reputable and award-winning investment management and financial services companies out there who are operating legitimate customer-focussed businesses. Infinity, of course, being one of them.
Before engaging any financial services company ensure that they are properly licensed and regulated. On a personal level, choose to work with someone you are comfortable with who is happy to explain anything that you have doubts about and never pressures you into purchasing products or services that you don’t fully understand.
♦ I don’t invest because… life is for living
We couldn’t agree more, but this doesn’t have to be an either/or situation. Having a financial plan in place which involves saving and investing doesn’t mean that you have to sacrifice all the pleasures in your life. It is all about balance. Take a look at your financial situation and see where you can make a few compromises which won’t impact too negatively on your life but which free up cash for spending. Examples could be inviting friends over instead of eating out, cutting out your daily Starbucks or sacking the gym membership and following a free couch to 10k programme instead.
Learning to overcome the desire for instant gratification is a big help too. The 30 day rule might work for you: before making a non-essential purchase (clothes, tech, holidays) wait 30 days before you commit. Often, you will find that you forget about the purchase within a few days, or you’ll have decided against it by the time the waiting period is up.
♦ I don’t invest because… my parents are well off
Banking on an inheritance to fund your retirement is a highly risky strategy. You are gambling your own longevity and health as well as that of your parents, assuming that timings will tally. They may not. In addition, there are a wealth of factors which will affect how much of your parents’ wealth is left by the time they die including inheritance tax, the cost of residential care in their latter years and how much they choose to spend. There might be a lot less left than you think.
Not to mention the potential for post-death legacy surprises which happen a lot. Actor Tony Curtis famously left nothing to any of his five biological children stating in his will ‘I acknowledge the existence of my children… and have intentionally and with full knowledge chosen not to provide for them in this last will and testament.’
♦ I don’t invest because… I’m earning loads. I don’t need to worry.
Financial security in the present does not guarantee financial security in the future. The recent film, Judy, which tells the riches-to-rags story of superstar, Judy Garland is a case in point. Once the toast of Hollywood with the lavish lifestyle to match, Garland mismanaged her fortune to such a degree that she ended up penniless and scraping by at the end of her life. And she is far from alone.
If you are earning loads, you owe it to yourself to ensure that you are managing your wealth appropriately. You never know what life might have in store for you so invest thoughtfully to make absolutely sure that your financial future is guaranteed, whatever life throws your way.
If you have been avoiding investing for one of the reasons above, perhaps it is time for a rethink? If you would like to explore how you can balance smart investing with managing risk our highly qualified consultants would be happy to answer any of your questions. Why not contact us to get the ball rolling?
A leading provider of expat financial services and wealth management services across Asia.