Tell your lizard-brain to shut up: Why we aren't investing
Sometimes we are our own worst enemy.
Hi, I’m Renée, a finance and business journalist, writer and content strategist. The Budgette is about single finances and is published twice a month to 2000+ readers. I prefer to write when I have something to say versus writing because I have to. It gives me time to speak to financial, legal and other experts. When I’m not here, I write and do strategy for other publications and brands. If you want to pay me for my work, that’s great. If you want to work together, message me or you can find me on LinkedIn.
The Budgette is three years old! It’s hard to believe that something that was started out of annoyance that no one was covering finances for single people has been around that long. Thank you all for reading, subscribing and sharing. I appreciate you all. Thanks to you, this blog is one of Ratehub’s The best finance blogs and podcasts for 2023!
This week we have a guest post from Alex King of Cestrian Capital Research, Inc. I’ve been reading Alex’s newsletters for years because they’re fun and informative. Alex read my last post and offers a take on it. Read on.
The Giant Transfer Machine
A recent article posted here at The Budgette – “Are All Your Dollars Working?” – excellent as always - got me thinking. For the overwhelming majority of people, investing doesn’t have a priority claim on their dollars. Now, for the majority of that majority, it’s because they don’t have enough dollars, so getting them working isn’t a problem they have. When you don’t have food, when you’re cold, when you can’t pay for healthcare, then what the mirage of investing may have to offer you doesn’t get anywhere near the top of the pile. But what about the minority of that majority, who do have some disposable income, but don’t invest any of it?
This, I think is for three reasons. The first is the investment industry itself, and the second is scammers who purport to be able to beat the investment industry. And the third is human nature.
Let’s deal with these in reverse order.
Human nature
We all want to double our wealth tomorrow in exchange for no risk and no work. And unless you are a crime lord, that isn’t possible. Indeed the most successful investors in this world – not “I sold my crypto company for apparently redundant fiat dollars at the top of the crypto boom” entrepreneurs, their skill and/or luck is to be credited, but that’s not what I mean by investors – the most successful investors are all (a) old and (b) still working very hard every day at investing, despite (a) and also despite being (c) very rich indeed. And this is because investing isn’t a get-rich-quick scheme. If you’re good at it, it’s a get-rich-slow scheme, and that doesn’t sound very interesting to anyone when they start out with it. Except if you don’t ever start doing it, despite having spare dollars, then the longer you don’t do it, the more money you didn’t make by doing it. The opportunity cost only ever goes up. This tends to dawn on folks late in life, unless they have unusually helpful and/or rich parents. And realizing late in life that you wish you had put more dollars to work investing makes you more likely to fall prey to …
Scammers
Since the dawn of time, charismatic ne’er-do-wells have sought to prey on the unsuspecting in order to relieve them of those hard-earned, easily-spent dollars. All you need is a clutch of famous and/or rich and/or attractive recruiters and before you know it, hundreds, thousands or millions of people are putting dollars to work in crazy schemes that cannot possibly end well. Whether it is square wheels in the Stone Age (a built-in parking brake, what’s not to like?) or altcoin crypto in the Golden Age Of Fraud (escape the strictures of Fiat Currency! Let money be free!), the promise of fast and free money is too much for most folks’ limbic brains to resist.
Particularly if they are approaching retirement and don’t have enough dollars, or they are young and don’t think that working hard is something they would very much like to do because, y’know, it’s me and I don’t have the time because, like, I have other stuff to do. Hardly any of these marks manage to achieve a timely and profitable exit from whatever Ponzi has besieged them because if they were the sort of people to be able to do so, they wouldn’t have been marks in the first place. If you’re reading this and this happened to you, it can be terrible, but in essence, you have likely been the victim of a crime committed somewhere, and just like you lock your front door every night, probably you’ll lock your wallet next time. The best method in this life when calamity strikes? Go again. Better this time.
The Investment Industry
The problem with the investment industry is that it exists, like all industries, to serve itself, but just like all other industries, some people think it is there to serve them. Just like Weight Watchers exists to help you lose weight. (Rather than to sell subscriptions and collect licensing fees). Or like your healthcare insurer exists to keep you healthy. This misconception about who is the beneficiary of an industry – customers or shareholders – should be tossed. Companies exist to serve their shareholders, that’s in fact their legal and fiduciary obligation. They don’t exist to help you build your pile of dollars, except insofar as that may be a goal coterminous with their own.
If you have some dollars to spare, and you want to get them to work investing, ie. with the aim of growing magic dollars over time that just appear from nowhere – we have two suggestions.
One, do what one of the oldest, most successful, richest and hardest-working investors the planet has ever seen – that’s Warren Buffett of course – tells you to do. Which is to drip money slowly into the S&P500 whilst paying low fees along the way. This note from CNBC is a good explanation of the method.
Or two, learn to invest yourself, which is to say, choose which securities you want to own, when to buy them and when to sell them. This is a very difficult route to choose and most people are not good at it. But if you’re numerate and literate and able to hold down the kind of job you need to be able to have those spare dollars in the first place, we don’t see any reason why you can’t learn to be good at investing. The key is to go slow, very slow. Understand firstly that the primary function of financial markets is to act as a giant transfer machine, which moves money from small account players to large account players and then keeps it there.
Big Money is Big Money – and stays that way – for a reason. Understand secondly that most things you are told by the financial media or the investment industry at large are there to help the financial media or the investment industry. And understand thirdly that as Mr. Buffett suggests, simple is very often better. (Scams are always complicated to explain in detail. Good investments are usually easy to explain).
If you’d like to start to move beyond the Buffett S&P method? You might consider something like sector rotation – something Big Money does all day every day in order to maintain their largeness. We posted a note on the method recently, here. This sounds boring, which it is. The method doesn’t feature any NFL players, musicians or models. It takes hard work to do it well. But then if it sounded easy, it would likely be a scam!
This week’s readings:
I’ve had the pleasure of speaking with Robb Engen for work so imagine how excited I was to see this article. Obviously very relevant to us here. I’m Single. Can I Afford To Buy A Home? (Boomer and Echo)
The Plain Bagel explains Canada’s housing crisis. (YouTube, The Plain Bagel)
I did journalism elsewhere:
How to deal with money and your finances when the economy is stressing you out (MoneySense)
Are rent loans the answer to rising rent costs? (MoneySense)
What’s changed in life underwriting? (Advisors.ca)
Want to invest but not sure where to start? A monthly subscription model for financial advice may be for you (Toronto Star)
A sudden cash windfall can be a blessing — and a burden. How to manage your instant wealth (Toronto Star)
Ok, enough about me. More things you should read:
Toronto university's 'free store' helps students weather affordability crisis in Canada (Yahoo Canada)
Posthaste: Betting on an inheritance? Your chances of getting one are higher in this province (Financial Post)
*side-eye* Canadians & Class: Strong belief in Canada as a meritocracy, but plurality identify as the same social class as their parents (Angus Reid)
Most Canadians expect a recession to hit in coming year, new survey finds (Yahoo Finance Canada)
More than one-third of Canadian workers feel 'financially stressed': report (Yahoo Canada)
I created a gift registry to celebrate my future as a child-free woman (CBC Radio)
The Boys Are Not OK (Friday Things) You all, please subscribe. This is a brilliant newsletter.
Financial Literacy Month is coming. I do have feeling about it, but it is important so let’s see how we can advance the conversation around the topic.