Today’s TED Thursday talk (woah, talk about mega alliteration – yay literary devices!) is about choosing. Or more precisely, how to be choosy about choosing. Sheena Iyengar raised an interesting point about how having more choices may not actually help you, but cause you to give up altogether.
Last week, I was trying to figure out what I should blog about next, so I asked several friends what they thought was the biggest challenge that prevented them from investing. I expected the answer to be something like “because I’m afraid of losing money”, or “because I don’t know enough about it”. But I was wrong. Surprisingly, the number one reason why people don’t invest their money is because there are way too many choices out there.
The more I thought about it, the more it made sense. There are dozens of things you could invest in: stocks, mutual funds, REITs, fixed income, ETFs, futures, options, foreign exchange, commodities, unit trusts, money market funds, art, wine, etc. And within each category, there are even more choices. Take a boring product like fixed income: there are government bonds, corporate bonds, CDs, zero coupon bonds, high yield bonds, junk bonds, bond indexes, bond funds.. Wanna buy stocks? There are literally thousands to choose from in any stock market around the world. It’s enough to scare the shit out of any novice investor trying to get started in investing.
First, let’s agree that investing is generally a good thing. Keeping your money in your stupid POSB savings account earning zero-point-lame % per year is not going to make you rich. What about bonds? For the past 200 years, bonds would’ve squeezed you about a 1% return rate after inflation. Stocks, on the other hand, have yielded an average of up to 7% each year after inflation over the last 200 years, according to Wharton professor Jeremy Siegel (Totally irrelevant but I used to crash his classes while studying at Penn and he’s a helluva awesome. And smart). So yes, investing in riskier assets, especially while you’re young and you have many years of income ahead of you to ride out the risk, is generally a good thing for us young, sexy, just-started-working adults.
We know that investing is good, but we’re just so damn overwhelmed by all the choices out there. Well you know what? I’m a big fan of the 85% solution: getting started is way more important than becoming an expert. From I Will Teach You To Be Rich:
“Too many of us get overwhelmed thinking we need to manage our money perfectly, which leads us to do nothing at all. That’s why the easiest way to manage your money is to take it one step at a time – and not worry about being perfect. I’d rather act and get it 85 percent right than do nothing. Think about it: 85 percent of the way is far better than 0 percent. Once your money system is good enough – or 85% of the way there – you can get on with your life and go do the things you really want to do.”
Over the next couple of weeks/months, I’ll be blogging about some simple, straightforward assets you can start investing in. Really basic, nothing fancy – you won’t have to learn about stupid terms like “ROI” or “derivatives” or “CAGR” – but they’ve been proven to beat at least 80% of the popular, expensive, actively managed unit trusts out there. Hint: They don’t involve watching the market every day. Stay tuned.
- How to start with as little as $100 a month
- The proven strategy that beats 80% of professionals
- The specific investments to start with, and where to find them in Singapore