7 Ways Investing Sucks (and Why You Should Do It Anyway)

by Tim Lemke on 18 August 2014 2 comments

Okay, so you're thinking about investing, but you're finding it all to be bit annoying. Too much confusing information. Too much risk. Too many hidden costs. Yeah, investing kinda sucks.

But here's the thing. You have to do it. It's not really an optional thing anymore if you want to build wealth over the long term. (See also: 10 Investing Concepts to Follow)

Let's take a look at some of the biggest problems with investing, and why you should do it anyway.

1. It Can Be Confusing and Scary at First

If you're new to investing, you will probably find yourself overwhelmed by it all. There's a lot of special lingo and confusing terms, and you may have no idea how to even get started. You're afraid your money may disappear, and besides, the notion of saving for retirement seems ridiculous when you're young.

Why You Should Invest Anyway

Fear is normal, but you should not let it be an obstacle to getting started. When done sensibly, investing is a tremendous avenue to building financial security and wealth. And it's best to get started as soon as you can.

Start slowly by investing a modest amount of money in a 401(k) plan or individual retirement account. Educate yourself about the basics of individual stocks and mutual funds. Read a few annual reports and a prospectus or two. And don't be afraid to seek advice. Find a certified financial planner who can help you get started for a relatively small fee. If you open an account with a discount broker such as Fidelity or Charles Schwab (a good idea), advice is often included at no cost, and these firms offer useful self-help videos and webinars. Get started. You won't regret it. (See also: Begin Your Investing Career Right)

2 . It Takes Time to Manage

True, you'd rather be living your life than worrying about stocks, bonds, mutual funds, and earnings reports. Every moment you spend watching the stock market is one less moment playing with your kids, watching a ballgame, or working on your novel.

Why You Should Invest Anyway

It's not as time-consuming as you think. A simple, balanced portfolio of stocks, bonds, and mutual funds doesn't require a lot of maintenance once you're all set up. If you are investing for retirement, you could go weeks without even checking your balance (and it's probably healthier for you mentally, too.)

3. It Might Take Away From Your Day-to-Day Living Expenses

If you decide to direct 5% of your salary to your 401(k), that's money you won't have available to spend. You'll have 5% less cash to do things like pay the rent, go out to eat, or take a vacation. And that stinks.

Why You Should Invest Anyway

If you don't sock that money away, you'll likely have a terrible retirement. The key is to invest as much money as you can and adjust your lifestyle accordingly. Learn to live more frugally if you have to. You'll survive, and your future self will thank you.

Investing for the long haul is the best approach, but you can also boost your income now through dividends and capital gains.

4. You May Lose Money in the Short Term

Investing comes with risk. Any money you place in the stock market or other investments could decline in value, as anyone who endured the financial crisis of 2008 and 2009 can attest. And losing money sucks.

Why You Should Invest Anyway

There may be years in which the markets take a dive, but it's important to know that the S&P 500 has averaged a return of more than 9% annually since 1928. The key here is to avoid day-to-day market watching and take a long-term approach to investing. Don't think about how a stock or mutual fund has performed over the last week or even the last year. Think about how it will perform between now and when you want to retire. The longer you invest, the more likely you are to see your money grow substantially. (This is also an argument in favor of getting started as early as you can.) (See also: Using Time Horizons to Make Smarter Investments)

It's important to note that you'll be protected against big losses if you have a diversified portfolio. Index funds are a great way to invest in the broader stock market and protect yourself against wild price swings. If you want to invest in individual stocks, buy shares of large, diversified companies that offer strong historical returns.

If you are getting close to retirement, financial advisors suggest changing the mix of your investment portfolio to include safer investments like bonds and CDs.

5. Fees

Just about every time you invest, someone takes a small portion of your money. You might pay something like $9 every time you trade. If you invest in mutual funds, the managers of those funds might take a percentage point or two for their expenses.

Why You Should Invest Anyway

Over time, market returns usually more than offset any fees you pay. And you can avoid paying high fees in many cases. Discount brokers including Vanguard, Fidelity, and Charles Schwab offer well-performing Index funds with expense ratios of a tenth of a percent or even less. Also keep an eye out for investments that can be traded without a commission. (Fidelity, for instance, allows investors to trade its iShares Exchange Traded Funds at no charge.)

6. Taxes

Wait, so I have to pay normal taxes on my salary, and then I have to pay 15% or more in taxes on any capital gains and dividends from the money I choose to invest? This sucks!

Why You Should Invest Anyway

You wouldn't forego your salary because you have to pay taxes on it, would you? The same goes for investments. But it's important to know that even though the taxman likes to take his chunk, it's fairly easy to avoid or reduce the amount you pay. When you invest in a 401(k) or traditional IRA, the amount you contribute is deducted from your taxable income. If you contribute to a Roth IRA, you can withdraw your money as well as the capital gains tax-free when you retire. Other accounts, such as 529 College savings plans and similar education accounts can also allow you invest tax-free and have other tax benefits.

There are other ways to avoid paying too much in taxes. It's worth a visit to your accountant to find the best way to invest and keep more of the money you earn.

7. You May Have to Wait to Get Your Money

One of the tough things about saving for retirement is that you often can't access your money until you reach a certain age. Most individual retirement accounts and 410(k) plans will not let you withdraw money before age 59½ without paying a 10% penalty. You might have hundreds of thousands of dollars in an account, but you'll get stung if you withdraw that dough early.

Why You Should Invest Anyway

For most people, the primary goal of investing is to build wealth for retirement. It's important to understand that retirement planning is a marathon, not a sprint. Leaving your money alone for a long time will help it grow. Consider that if you invest $100 a month from now until 2039, you'll have about $221,000 based on average market returns. Keep going until 2045, and you'll have $356,000. That's right, an extra five years in this scenario will land you 65% more money. So embrace the wait. Waiting is your friend.

What's keeping you from investing? Let us know in comments, and we'll see if we can't convince you why you should anyway.

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Guest's picture

Fees aren't so bad as long as you're getting paid for the risk. If you pay more fees then you expect better returns (and face higher risk).

Jay

Guest's picture

Best to start investing as early as possible. Recessions come and go, but if you look long term.. 50-100 years, stocks are king. Even moreso than real estate.