Don’t Worry About Investing, Just Start Saving

Investing in the stock market can be intimidating, especially for a beginner with very little savings. Even the pro’s can’t agree on where we should put our money. Index funds? Individual stocks? Bonds? ETF’s? The list goes on and on. Basically, it scares people away.

That, in itself, is not a bad thing, because some people have no business actively investing because they lack the knowledge to get a positive return. Some people should put their money in a simple mix of low-cost index funds and AAA bonds. The payout isn’t great, but it’s not negative.

On the other hand, here’s where that intimidation becomes a bad thing: When it keeps people from saving money at all. I spent years trying to convince my friends and family to start saving, but they would never listen. I heard the whole gambit of excuses:

  • I can’t afford to lose it
  • I don’t have time to track my investments
  • I don’t understand how the market works
  • I don’t have enough money to invest
  • I’ll do it soon, I promise
Then it dawned on me, these were all good reasons not to invest.  But they were not good reasons to delay saving.
Now that I understood the underlying reason my friends and family weren’t saving, it all made sense.  I found it much easier to convince them to start saving.  Then once they had some money built up, it was far easier to convince them to invest with low risk methods.  Like every other problem in the world, it’s easier if you break it into smaller parts.
If you’re not saving, why not?  Is it one of the reasons above?
If not, then set up an automated monthly withdrawal from your checking account into your savings account.  Make it as much as you think you can get away with, then add 50%.  Don’t worry about investing it yet, just start saving.




16 Responses to Don’t Worry About Investing, Just Start Saving

  1. I think you’re right about this. I was taught to save since I was a child so it wasn’t a big leap to start investing. I can see if a person doesn’t have any saving, he would hesitate about investing.

    • I started saving at 11.  I made $2K over 2 full years of delivering newspapers, and was only allowed to spend $100 on a gameboy during the entire time.  While I wouldn’t be as strict as my dad was with me, I plan to encourage the same basic lesson with my kids.

      BTW – That $2K was made in 1989-1990.  It was $18K by the time I went to college.  The 90’s were good years for investments.

  2. Great BNW, I meet so many people who spout the classic, “Pay off your mortgage, my home is the best investment I ever made.”  If I mention anything about the easy, efficient, low-risk ways of investing available today the usual reply is, “Oh ya, the stock market, that seems to be going so well lately.”  It is so difficult trying to explain to people who are intimidated by the subject.  The funny thing is, I am definitely not a math guy, and have no formal business education, yet I believe I have a pretty good grasp on investment vehicles and the options available.  I honestly don’t think it’s that hard.  The pure math involved for a basic understanding is mostly just a few simply percentages and ratios, not exactly rocket science.

    • It’s funny how many people say “BNW” instead of “BNL.”  I guess I was asking for it.

      Paying off your mortgage isn’t necessarily a bad idea depending on the circumstance.  If you’re sitting on a 6%-7% loan, I’d do that before I invested in the S&P.  On the other hand, I just bought a house and had the option for a loan at 3.1%.  I could have paid cash, but instead decided to invest in some good dividend yielding stocks. 

      The 3.1% is less than the dividends will yield, plus those yields should increase.  Top it off with the fact that those yields have increase year over year for 25+ years – it’s a pretty safe bet even if my capital decreases.

      • Haha, sorry, I have taught the book Brave New World before, force of habit.

        I absolutely agree about the mortgage levels.  I am a product of the O% national bank rate generation here in Canada.  People my age have no idea what historical averages are on interest, or what a 17% mortgage can look like.  I’m hoping to have it paid off before it raises to that 7% level!  The way I see it, the central banks in Canada can’t raise it too much as long as the USD stays low because it is killing our export economy to the USA (see my post this week).  So, in a selfish way, I don’t see the USD getting stronger in any meaningful way for another 2-3 years.  I hope to have most of my mortgage paid off by the time interest rates really start to rise.  Right now my mortgage is at 3.5%, so I feel confident I can outperform that ROI just as you do.  Afterall, the stock market has returned over 10.4% annually for over 200 years.  Sure the USA is maturing, but with explosive growth in emerging markets (and most of the dividend players you own being huge, diversified companies) I can’t see the stock market returning less than 8% to patient investors who do a little homework.

  3. You’re absolutely right. Often we let our unlimited freedom of choice paralyze us from making a decision. We’re so afraid we won’t make the best choice we don’t do anything. We’d be much better off if we made good – not the best, just good – decisions, than if we made no decision at all. 

  4. You’re absolutely right. Often we let our unlimited freedom of choice paralyze us from making a decision. We’re so afraid we won’t make the best choice we don’t do anything. We’d be much better off if we made good – not the best, just good – decisions, than if we made no decision at all. 

  5. I think this is a big part of why I like workplace retirement savings plans that require you to opt out (instead of opting in), because at least then, you are saving something. 
    The first company we had our 401(k))s with had a little test you could take to find out how comfortable you were with risk. Because the hubby and I were both young (late 20s) we opted for riskier investments.
    Even now, that 401(k), which I forgot to roll over, is now invested completely in emerging foreign markets. Its not much, about 1/8 of what’s in my current 403(b), which is a little more balanced (but still on the risky side because I’ve got at least another 30 years of working – I like working), but its still there and working for me in a way it wouldn’t be if I’d pulled the money out when I switched jobs.

    • The opt-in 401k plans have 75% enrollment at most companies.  The opt-out has 90% enrollment.  That says a lot about the passivity of people’s retirement plans.

      I’ve seen that recently come companies are also increasing the opt-out contribution by 1% each year, which is a good idea.

  6. It is just good common sense to have safe and secure savings before you start investing.  Glad you were able to find a way to talk through it with your family.

  7. Savings should come first ALWAYS.. You can Invest those savings later.

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