10 Things That Prevent People From Investing

Simon Quayson

1 year ago

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10 Barriers of Investing: What is Preventing You from Investing Your Money?

Investing in anything will produce results. This is true if due diligence is applied beforehand. This is a valid point with regard to financial assets such as stocks. But these results could be either positive (gains) or negative (losses) results. There are a number of barriers of investing that hinder folks from partaking in these financial instruments today.

Some of the reasons mentioned here may be a general risk aversion to high-risk investment instruments such as equities. And sometimes these concerns may be in other psychological forms. These barriers of investing – as they say, will give other decisive and eager investors an advantage to making money on the stock market. The ten (10) reasons that are preventing people from investing are as follows:

1) Family Habits that Hinder Personal Growth

If you feel your parents did not instill that crucial childhood financial literacy into you, or the desire to invest, you’re not alone on this one. Many people do not realize the need to teach their kids about money. Instead, they themselves live out lives of financial indiscipline. And you can be sure that these little people walking around the house will observe and learn from these poor money habits.

Friends of course do have a significant influence on our finances. Your money mindset will head in the direction of the thinking of 5 of your closest friends. This gives rise to the need to pick them right. Your default friends may be great buddies, but will have a negative influence on your net worth and financial success if you keep growing this union. It’s one of the barriers of investing and should be handled with care; because relationships and emotions are involved.

2) Fear of the Unknown will have a Negative Impact

The fear of the unknown is quite another barrier of investing. This impedes entry into the world of stock investing. The cure for this is simple. Financial literacy! This can be a personal discovery through learning from online materials and resources. Many blog posts, YouTube videos, and podcasts have jargon-free alternatives for the absolute beginner to start learning at their own pace.

3) Investing Seems Too Complicated to Grasp and Practice

Investing is as easy as can be. It’s just like riding a bike. Once you start learning that pumping one pedal after the other will help maintain balance – rather than trying to stand still with those two wheels. Learning the basics will give you the confidence to study further.

You must understand, those investors were not born ready-made. They all had to start from the beginning and learn the ropes of investing step by step. This is true for all asset classes including individual stocks, bonds, ETFs, real estate, metals, commodities, and foreign stocks.

4) Fear of Taking Risks that Could Potentially Lead to Losses

The fear of taking risks or being risk averse will become barriers to investing for beginners. This fear is purely psychological and has a seat in the subconscious mind. This is usually expressed as, “the pain of my potential loss is twice as much as the joy of my potential gain” – paraphrasing an original saying.

This fear is lessened by acquiring sufficient financial literacy. Have a fair knowledge of the stocks you intend to invest in; through research and some amount of due diligence. The greater risk most people take with their money is to leave it in savings accounts. This is just like setting fire to bank notes through the furnace of inflation.

5) Lack of Financial Literacy is a Leading Barrier of Investing in Stocks

So far, financial literacy seems to be the chief of all the barriers to investing by individuals. As common as this may be, it is the will to learn – that breaks this yoke. Be willing to acquire knowledge by studying personal finance. Find online courses and books that are now available everywhere.

Practical application of skills learned is of immerse importance at this stage. Learn the basics of budgeting, and try your hands at individual stocks through a risk-free online stock simulator. This gives you a taste of the world of capital gains (or losses) without risking your money. Hypothetical trades are carried out with real-life and real-time market data.

6) Lack of Clarity of Things Related to Investing or Information about Stocks

The lack of clarity and industry jargon could be one of the barriers of investing. To achieve financial freedom through stocks, one must learn the lingo. The beginner investor today has massive amounts of data at their finger tips.

There are a lot of tools to aid the absolute beginner of stocks to measure and track their savings and investments. Many of these tools and resources are free to use. The premium versions have features that professionals of yesterday would have killed for.

You will also find financial reports in the investor relations section on the websites of a lot of publicly traded businesses. Search for full annual reports or comb through the quarterly reports. With enough effort, you make sense of the basic reporting about the underlying fundamentals.

7) Lack of Commitment to Regular Investing

Investing is, and must be a lifelong commitment. The stock market was designed to pair two investors – buyers and sellers together. This long-term commitment will allow the miracle of compound interest to produce yields that are closely correlated to the returns of real businesses and real estate assets.

However, lack of dedication to the process can cause many to fall off along the way. Build a regular investing habit on a monthly basis. Perhaps, automate the process of forwarding a percentage of your paycheck to an investment account. This reduces the drudgery of manual financial assignments that many may see at part of the barriers to investing. And while you have some free time on your hands, read to build up your mental profile about businesses.

8) Lack of Investment Research Know-How

A lack of investment research know-how prevents investors from pursuing individual stocks as an asset class. This barrier of entry leaves a fewer number of investors to partake in capital markets around the world. Investment research could be as basic as glancing at P/E ratios to check if the price-to-earnings multiples make sense.

Understanding the basic content inside an annual report could take only a few minutes to grasp. Parking cash in safer asset classes like gold or mutual funds is an alternative move by investors. Other financial assets such as ETFs are also gaining ground due to their simplicity.

9) Lack of Savings a Barrier if You Live Pay-Check-to-Pay-Check

Lack of money is a clear example of the barriers of investing. A hindrance to many who do not have enough month at the end of the money! But did you know that money could become available for investing by practicing budgeting?

A great example is the 50-30-20 budget rule. This guides the allocation of your after-tax income into your Needs (50%), your Wants (30%), and finally Savings (20%). A simple but yet effective system that helps you start investing with all or a part of that 20% savings allocation.

There is a full coverage of the 50-30-20 Budget Rule here with details and examples.

10) Procrastinating the Investment Activity

Procrastination is a valid obstruction; another one of the barriers of investing into the stock market. Investing in equities work best when you start earlier. The power of compounding rewards older investors than newer ones. There is no point in postponing this vital economic duty. You can always start small and build an investment nest egg of equities using Dollar Cost Averaging (DCA).

This strategy allows you to acquire investments with the same dollar amount (EXAMPLE: $100) each month. You will own more stocks when the stock price is lower, and less if it’s higher. As you average out the total cost of the position, your risk is minimized in down markets; but not so favorable a strategy in bull markets. The alternative approach to DCA is lump sum investing.

A Few Parting Words

There are a million reasons and excuses that stop people from investing. We have discussed only the top 10 barriers so far. As sad as this may be, that’s often the reality of life. It is up to you to make that choice. Whether you fall into the category of people who have cold feet when it comes to stocks, or you already have a toe or two in the water.

Stock investing produces some of the highest yields in investment returns in the world. This of course will come with its own associated risks. These obstacles are somewhat good. They will keep your competitors stuck while you take action with your money 😉

Have you seen excuses up there that resonates? Please share your views in the comments section below; or add your take to my list.

10 Things That Prevent People From Investing

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