It is very common for people to make an initial investment e.g., buy a parcel of shares or an investment property, but fail to make any further investments for many years or decades. Why does this happen? What is paralysing their ability to make investment decisions?
Perhaps you don’t have enough time
We use lack of time as an excuse for not doing many things. But if we are honest with ourselves, if the matter was important to us, we’d make time. It’s easy to let our time get absorbed by the matters that appear urgent at the expense of the matters that are important. Or sometimes we tackle the seemingly ‘easy’ tasks first – the easy wins – and procrastinate on the more complex matters. You can never maximise your position without good time management and discipline.
But when it comes to building wealth, lack of time is a very poor excuse. If you think investing successfully will absorb a lot of your time, then its likely you’ve got the wrong advisors or adopted the wrong approach.
Many of my clients wouldn’t spend more than a few hours a year thinking about or dealing with their investments.
Maybe it feels too risky
Making a choice about where to invest your money can feel risky because you fear making a mistake. Financial mistakes can be costly. And you have worked hard to get to your current financial position, and you don’t want to jeopardise it.
Often, we think the solution to minimising this uncertainty (risky feeling) is getting more information. As such, we postpone making a decision so we can research more, talk to more people, listen to more podcasts, observe markets and so forth.
But this approach rarely works because it’s not the lack information that matters. It’s the lack of experience.
Experience helps us decide when and how to use the knowledge we have. Knowledge is only useful when we know how and when to use it. In this case, it’s best to ask a ‘who’ not ‘what’ question.
Whilst a lack of experience might be preventing people from investing regularly, I think there’s a bigger reason.
Maybe insufficient capacity to invest
It is possible that you haven’t invested more because you do not have the capacity to do so e.g., cash flow, cash savings and/or borrowing capacity. If you fall into this category, then this blog isn’t about you. The blog is about people that have the capacity to invest more but have not done so.
It’s impossible to make confident financial decisions without any ‘context’
If a person stopped you in the street to ask you for directions but didn’t know where they were heading (i.e., destination), would you be able to help them? Of course not. The same is true for investment decisions.
If you asked me whether you should buy an investment property, how could I give you an answer without knowing what your financial and lifestyle goals are and your plan to achieve them. It is possible that investing in a property would hinder your abilities to achieve these goals.
One of the most valuable outcomes of developing an evidence-based investment strategy is that it provides you a clear context for making all financial decisions. Such important decisions can include where, when and how much to invest in the future, whether buying a beach house will compromise your ability to enjoy a comfortable retirement, whether you can afford to make a career change (that results in a lower income) and so on.
Context is your missing ingredient
It is my thesis that most people fail to progress their investment journey because they have a lack of context. They don’t know where they are heading or how to get there.
Making an initial investment is an easy decision because we all know we must do at least one thing. But making subsequent investments can be more difficult because it’s not always clear which investment option compliments your existing investments.
How do you map out an evidence-based investment strategy?
In the next couple of weeks I’m going to share the three steps that I follow to map out a long-term investment strategy for my clients. I have refined this process over the past 20 years, and it works tremendously well. Completing a similar process for yourself will provide the necessary context that I refer to above, and that is incredibly valuable as it helps you avoid making mistakes and keeps you on the right track.
