How to Overcome the 5 Biggest Barriers to Investing
Originally published on Substack
In my previous article, The Top 5 Barriers to Investing, we explored five reasons people struggle to get started:
Procrastination. Information overload. Lack of knowledge. Fear of losing money. And lack of capital.
Now for the more important question: What can you do about them? Let’s dive into 5 ways to overcome these barriers.
#5: Stop Waiting for the “Perfect” Time
If your barrier is “I’ll start later,” the simplest solution is to make starting easier. My favorite strategy is automation. Investor.gov encourages investors to consider regular, automatic contributions to investment accounts. The idea is pretty simple: instead of having to decide to invest every month, you can set an amount to be invested automatically. [1]
Remember the 401(k) study from my last article? Participation jumped from 37% to 86% when employees were automatically enrolled. Sometimes changing the default can make a huge difference.
The important part isn’t choosing the perfect day to start; it’s breaking the cycle of procrastination.
#4: Simplify the Information
As we discussed in Part 1, Federal Reserve researchers found that investors have a limited capacity to process information and that information overload can affect investment decision-making. [2]
So instead of trying to consume everything, narrow down the questions you’re trying to answer. You can start with these questions:
What am I investing for?
How long do I plan to invest?
How much can I realistically afford to invest?
How much risk am I comfortable taking?
You don’t have to understand every stock, ETF, investing strategy, or piece of financial news before taking your first step. You really don’t need a hundred more opinions before you decide to start investing.
#3: Learn the Fundamentals, Not Everything
You don’t need to become a financial expert overnight. Honestly, it’s not realistic. Start with the fundamentals: understand what you’re investing in, what it costs, the risks involved, your goals, and how long you plan to invest.
Investor.gov points investors toward understanding factors such as their financial situation, investment objectives, experience, fees, ability to withstand losses, and time horizon when thinking about investment decisions and risk. [3] It also doesn’t hurt to do some research on what you plan to invest in.
There will always be something else to learn about investing, and that’s okay. You don’t need to know everything. But you should understand what you’re putting your money into.
#2: Understand Risk Instead of Pretending It Doesn’t Exist
This is the one barrier nobody can eliminate. All investments involve risk, and investors can lose some or all of the money they invest. However, it’s not hopeless. What you can do is understand the risk you’re taking.
Diversification, for example, spreads money across different investments to reduce overall investment risk, although it cannot eliminate risk altogether. For example, you could invest in ETFs, which are a collection of many different stocks or bonds bundled into a single investment to spread risk.
The goal shouldn’t be to convince yourself that nothing bad can happen. The goal is to make informed decisions about the amount and type of risk that are appropriate for you.
#1: Rethink Where Your First Investment Has to Come From
And then there’s the barrier that stopped my younger self.
Not enough money.
For a long time, I assumed investing had to start with my disposable income. So, if I didn’t have enough money left over after meeting my immediate needs, I couldn’t start investing. But eventually, I started thinking about this differently.
Every year, billions of dollars already change hands between friends and families as gifts during birthdays, graduations, weddings, baby showers and holidays. We already spend money celebrating the people we love.
What if some of those gifts could become investments instead?
That’s part of the idea behind Endowe. It is an investment gift registries that allows you to create a registry and share it with friends and family, turning gifting occasions into an opportunity to contribute toward investments.
And when I look back at the barriers from our first article, that’s what I find especially interesting about investment gifting. It can help overcome four of those barriers:
Not enough capital? Your first invested dollars don’t necessarily have to come entirely from you. They can come from gifts.
Don’t know where to begin? You’ll get investment recommendations that are suited to you as a starting point.
Overwhelmed? Starting doesn’t mean figuring out the entire world of investing at once. Just setup your Endowe registry, share with the people in your life and watch as you acquire investments.
Keep putting it off? A birthday, graduation, wedding or another milestone can become a natural moment to begin.
But Endowe can’t remove the fifth barrier - risk. An investment gift is still an investment. Its value can rise, and it can fall. The goal isn’t to pretend investing is risk-free. It’s to make some of the other barriers that prevent us from getting started a little smaller.
Maybe the Best Gift Is a Starting Point
I sometimes think about my younger self. What if, instead of another birthday gift I eventually stopped using, someone had given me my first investment? Would I have started paying attention to investing sooner? Would investing have felt less intimidating? Would I have continued investing afterward?
I can’t know for sure. But I do know that getting started is the hardest part, and right now, Endowe makes it a lot easier.
With lots of love,
Your godmother Ada
-------
Disclaimer: As someone in finance as a regulated investment professional, I want to be clear: I’m not your financial adviser, and this post is education, not personalized advice. All investments carry risk including possible loss of principal, and past performance doesn’t guarantee future results. Talk to a professional who knows your full situation before making money moves.
