Overcoming Investment
Obstacles
Overcoming Investment
Obstacles
by Sam Becker
In the 1990s, many of the most risk-averse individuals responded
to the siren-call of the-bubble-can't-burst profitability of the stock and
bond markets. Yet in spite of the lofty heights of high stock prices and
profit-taking, obstacles to investing often crop up to dishearten the minds
and emotions of experienced as well as fearful, new investors. Overcoming
these obstacles to investing remains a daunting proposition for professional
investment advisors and investors.
Willingness to Risk
Obstacles to investing seem mostly related to risk or of taking
chances. Fundamentally all investors are people who have goals and dreams,
who want to be financially secure, take care of their loved ones and have
a happy life. It is thus instinctive to think that investing means to take
a chance, to risk taking money away from the very places it may be needed.
Economic consultant Peter L. Bernstein states, (Against the Gods)
"The word `risk' derives from the early Italian risicare, which means
`to dare.' In this sense, risk is a choice rather than a fate." The
mastery of risk -- not taking a gamble or relying on luck -- is at the heart
of modern risk management, which is a major tool used in building every
investor's portfolio. In other words, when choice is involved, investors
have the ability to weigh pros and cons and make appropriate decisions.
Controlling Instincts
In planning for and reaching financial goals today, basic instincts
cannot be ignored, but must instead be channeled and used to expedite financial
plans. For example, in Taking Control of Your Financial Future, Tom
O'Hara stresses the need to set short and long term financial goals. The
initial step for goal setting is to get one's spending under control and
to set up an emergency fund. "Everyone needs an emergency fund...The
emergency fund is your number one priority, regardless of your age, marital
status, or however precarious your financial condition. Pay yourself first,
trim today's treats to yourself, and accumulate savings." Savings that
are needed at a later date ((children's education, retirement, etc.) are
the longer-term investments individuals must be prepared to make.
The Motley Fool Investment Guide, written by David and Tom
Gardner, also emphasizes the need to control instincts. "True wisdom
challenges our preconceived notions or expectations." The authors add,
"In the end, every great investment method succeeds by using commonsense
wisdom. Dealing in money, the investor constantly must avoid his own instinctive
temptation toward fear and greed. Fear and greed will ruin investment returns.
This, then, is the true wisdom, to resist one's baser instincts." Learning
to choose ameliorates the investment obstacle of fear.
Understanding the Complexity of Investments
Another obstacle to investing centers on the complexity and nature
of making investment choices. The National Institute for Consumer Education,
through Eastern Michigan University, summarizes investment options as stocks,
bonds, mutual funds, real estate, collectibles and futures contracts. The
Institute ranks these options by level of risk, then points out the essential
complexity of the choices, "Factors to consider when selecting (these)
savings and investments include liquidity, risk, return, inflation, diversification,
taxes, and stage in the life cycle." Self-study, formal education,
workshops and other learning vehicles help investors determine how, when
and why to invest.
Dependence Vs Independence
Society teaches us to listen to our parents, respect our elders
and trust our leaders. Depending upon others for their knowledge or skill
makes sense. Yet unsettling or costly circumstances happen and sometimes
teach us to become more reliant on ourselves, to strive for a goal in our
own way. The Gorilla Game (Moore, Johnson and Kippola) notes
that there is "a shift in our society from institutional trust to self-reliance."
That does not mean investors stop talking with professional investment advisors.
But many investors, even new ones, are able to discuss technical analysis
of investment choices, so must be guided in a different manner. The Tao
Jones Averages quotes Lao Tsu, "To resist change is like holding
your breath." Don't inadvertently become your own obstacle to investing.
Also remember that change brings its own opportunity.
Complexities Remain
Even with the many changes in investing, the initial decision to
invest and how to go about it is still viewed by the average individual
as a difficult twisted road strewn with all manner of obstacles that (s)he
is loath to encounter. Unsettling national and world news-bites add to this
maelstrom of obstacles that the professional advisor must guide the investor
through.
Editor's Note: Sam Becker is a freelance writer specializing in the financial
services industry. He has a degree in Business Finance with more than 20
years experience in business and personal financial management. Sam is a
member of a national not-for-profit service organization committed to the
education of long term stock investments. For additional information, please
call (805) 496-8850.
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