10 Obstacles to Investing – and How to Overcome Them By Guest Blogger 11/29/2021 David Booth is the Founder and Executive Chairman of Dimensional Fund Advisors, a global investment management firm based in Austin, Texas. After attending the University of Chicago as a graduate student, where he was a research assistant to Nobel Laureate Eugene Fama, David founded Dimensional in 1981. A trailblazer in the financial world, he helped create one of the world’s first index funds in the 1970s and launched the first passively managed small company strategy in the early ’80s. He has spent his career applying groundbreaking financial theory and research to the practical world of asset management, working closely with renowned academics to develop innovative investment strategies that he believed could outperform index funds, pioneering what would later be called factor investing. In the following article David draws on his years of experience talking with investors and academics alike to address some common hesitations all investors face from time to time. 10 Obstacles to Investing – and How to Overcome Them By David Booth Executive Chairman and Founder, DFA We’ve learned a lot about investing over the past 60 years, a period that has seen many breakthroughs in the world of finance. What we know comes from studying public markets and is grounded in serious academic research. The lessons are clear: Investing in markets is an excellent plan for meeting long-term goals, like maximizing your retirement income. When you develop a deeper understanding of public markets, you can cultivate a sense of optimism about investing. Two ideas are at the heart of embracing this approach: First, markets provide a way for both sides to win. In order to trade, both buyer and seller have to agree on a price. If either side felt the price wasn’t meeting his or her needs, they wouldn’t trade. This is what we mean when we say market prices are fair. Second, markets allow all of us to invest in human ingenuity—and get paid for it. We want to help as many people as possible access what markets offer in investment opportunities and wealth generation so they can live better lives. Even though the investment principles we run on are simple, they aren’t always easy to understand and accept. Many people struggle with some of the basic concepts behind long-term, highly diversified investing—it’s a matter of human nature. Here are some of the objections I’ve encountered. I think most of us can relate to at least one of them. 1. “I DON’T SEE THE POINT OF INVESTING IN THE FIRST PLACE.” Any decision you make with your money—even not investing—is an investment decision involving risk and rewards. You’re focused on the risk involved in investing. But what are you risking by not investing? You’re risking today’s money having less value in the future because of inflation. You’re missing out on the magic of compounding, which Albert Einstein is said to have described as the Eighth Wonder of the World. (Assuming an average 10% return, as the S&P 500 has returned historically, money invested in the stock market doubles every seven years.) You’re forgetting that diversification—spreading your investments across a large number of companies—is a powerful way to minimize risk. When it comes to personal goals, everything has a tradeoff. Most people don’t have enough money saved to be able to live adequately in retirement without earning some kind of investment return. In the simplest terms, by not investing, you risk outliving your money. 2. “I’M TOO LATE. THE TRAIN HAS LEFT THE STATION.” It’s natural to feel regret about decisions you’re unsure about. But it’s never too late to invest. Every day, we expect the stock market to go up. Otherwise, investors would find other things to do with their money. 3. “WHEN IT COMES TO INVESTMENT ADVICE, I DON’T KNOW WHO I’M SUPPOSED TO TRUST.” Here’s the good news: You don’t have to “trust” anyone. Just trust the market. No human being can tell you more than the market has already told you through setting prices. Markets are always reacting to new information in real time. Anything you hear a pundit say on TV or read on an internet message board is yesterday’s news. And it may seem obvious, but you have to remember: There’s a difference between fact and opinion. Cultivate a healthy sense of skepticism when it comes to financial punditry, and remember that it’s not news, but entertainment. And if you need a trustworthy sounding board, consider meeting with an independent financial advisor, whose interests are aligned with your own. 4. “IT’S TOO HARD TO FIGURE OUT WHEN TO GET INTO—OR OUT OF—THE MARKET.” Human beings have a natural urge to transact. But getting into and out of the market is gambling, not investing. If you treat the market like a casino, and you’re picking stocks or attempting to time the market, you need to be right twice—in an aim to buy low and sell high. Fortunately, you don’t need to time the market to have a good investment experience. Professor Eugene Fama, a Nobel laureate in economic sciences, showed that it’s unlikely for any individual to be able to pick the right stock at the right time—especially more than once.1 Once you decide to be a long-term investor, the timing debate is off the table. And that’s a big relief. When you buy the whole market, you’re investing in human ingenuity to find productive solutions to the world’s problems. 5. “I’M AFRAID I’M GOING TO LOSE IT ALL.” If you’re lucky enough to live a long time, you’ll face big market downturns. You’re much more likely to “lose it all” with concentrated investments than with a well-diversified portfolio. Individual investments may go to zero, but the modern-day market has been around for almost a century, has an average annual return of 10%, and has never lost more than 43% in a year.2 6. “I DON’T KNOW WHAT I DON’T KNOW, AND THAT MAKES ME NERVOUS.” It’s OK to be nervous! If investing were a slam dunk, there wouldn’t be a positive expected payoff. In order for an investment to offer the possibility of a return above money-market funds, it needs to carry risk. And when it comes to deciding how to grow your hard-earned money, the stakes are high. Uncertainty is scary, but without uncertainty, there would be no opportunity. Stock market behavior is uncertain, just like most things in our lives. None of us can make uncertainty disappear, but dealing thoughtfully with uncertainty can make a huge difference in investment returns and quality of life. Your challenge is to stick with an established plan. A financial advisor can help. 7. “I ONLY WANT TO INVEST IN COMPANIES I’M FAMILIAR WITH.” Stock markets contain all of the publicly traded companies out there. Every company has an incentive to do better. Investing in human potential across a broad range of companies is more likely to pay off than trying to predict which individual company is going to perform best. You can do well without having to outguess the market. 8. “I’M AFRAID THERE’S GOING TO BE ANOTHER FINANCIAL CRISIS.” History shows us that there’s always going to be another financial crisis—and another recovery. Every crisis has a different cause, so it feels different every time, but the market has always delivered a positive return once things settle down. Crises, by definition, are not predictable. Markets are forward-looking and remind us of the power of human resilience. 9. “I’M OVERWHELMED. IT’S JUST TOO MUCH TO THINK ABOUT.” Inertia is a powerful force. Thinking a little bit about it right now means worrying a lot less in the future. Inaction comes with a price, but this is where a financial advisor can really help. 10. “I DON’T HAVE ENOUGH MONEY TO INVEST.” When it comes to investing for your family’s future, there is no minimum. The first and most important step toward investing is saving. It’s human nature to procrastinate. Half the battle is just getting started. This can mean “paying yourself first” by directing a small percentage of each paycheck into savings. Putting money aside regularly becomes a feel-good habit, like exercise. You can witness your own incremental progress and the boost in self-esteem it brings. You’ll be surprised by how easy it is to set this in motion, and you’ll feel good—for yourself, and your family. Just look at these numbers: If you invest $100 today and then $100 per month for 30 years with a 10% return, you’ll end up with almost $200,000.3 1Eugene F. Fama and Kenneth R. French, “Luck versus Skill in the Cross-Section of Mutual Fund Returns,” Journal of Finance 65, no. 5 (2010): 1915–1947. 2In US dollars. S&P 500 Index annual returns 1926–2020. S&P data © 2021 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. 3The performance reflects the growth of a hypothetical investment and assumes reinvestment of income and no transaction costs or taxes. Eugene Fama is a member of the Board of Directors of the general partner of, and provides consulting services to, Dimensional Fund Advisors LP. Diversification neither assures a profit nor guarantees against loss in a declining market. Past performance is no guarantee of future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with management of an actual portfolio. The information in this document is provided in good faith without any warranty and is intended for the recipient’s background information only. It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorized copying, reproducing, duplicating, or transmitting of this document are strictly prohibited. Dimensional accepts no responsibility for loss arising from the use of the information contained herein. “Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd., Dimensional Japan Ltd., and Dimensional Hong Kong Limited. Dimensional Hong Kong Limited is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services. UNITED STATES: Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission. Investment products: • Not FDIC Insured • Not Bank Guaranteed • May Lose Value Dimensional Fund Advisors does not have any bank affiliates. You Might Also Like Still Searching for the One? Jason Brown November 22, 2021 Financial Perspectives Kent Kramer Do I Have Portfolio Exposure to China? Ryan Lamoureux My Top 9 + 1 from Morgan Housel’s The Psychology of Money Jason Brown PLEASE SEE IMPORTANT DISCLOSURE INFORMATION at www.fostergrp.com/disclosures. A copy of our written disclosure Brochure as set forth on Part 2A of Form ADV is available at www.adviserinfo.sec.gov. BACK TO TOP Return to Results Share on facebook linkedin twitter email Want more? Ask us a question. 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