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Financial Planning Progress Report

Investing is complicated. Read this if you agree.

When there are dozens of books and hundreds of blogs offering great advice, why do it still feel that investing is complicated?

I hold a business degree, and have studied a little bit of accounting, cost accounting, financial management and economics. I have also been interested in economics for a while, and yet I felt investing is complicated. The result was a slow start and missed opportunities.

Mr A’s investment growth over the years. Very slow to start.

I opened my Depot account (investment account) with Comdirect in 2015, and was in my baby steps. By 2017 I had really gotten on-board with the whole FI theme and investments as the essential thing to do for the long term financial independence.

If you look at the chart, the timeline doesn’t match the dates I just mentioned! I was investing no more than 28 EURs a month in 2015, and could grow it to 400 per month in 2017, later dipped to 330 per month in 2018. Why did I need 24 months to grow from 28 to 330 EUR of investments per month? I had all the cash lying around anyhow!

Investing is complicated because doing something is different from knowing it.

Last year I was listening to this podcast, where they discussed why home improvement or DIY Youtube videos are so addictive and yet they do not result in us picking any new hobbies. This is after watching all those videos which teach us how to do the stuff! The same principle applies to investing as well, just knowing it often doesn’t translate into doing it.

The barriers which affect your ability to invest are Time, Fear and Uncertainty of outcomes.

  • Time: I felt that I need to spend a few hours each month to manage my savings, and its time away from other things in life. Solution: Automate your investments every month, you can even buy stocks in part each month.
  • Fear: I am putting money into a fund or stock, its like putting into someone else’s pocket not knowing if it returns? Solution: Understand your relationship with money and why do you think so. Understand that this is not a lottery but you are buying a piece of different functioning businesses.
  • Uncertainty: There is no guarantee that my investments will give me decent returns, its all far to risky and unsafe. Solution: True, there is uncertainty, but if you aim for the average returns in the long term, the chance of failing is quite low.

I had the very same fears, and thus I started super slow. We do not get physical certificates for stocks to serve as a proof, neither are there any guarantees. Yet, the day I looked at the stocks which simply had grown 50% in 2 years while I had purchased too few of them, I realized that I had made a mistake of not doing it earlier when they were cheaper. No volume of reading blogs could get me there.

Investing is complicated because there are so many complex concepts to understand

Not really, if you focus on a set of handpicked index funds(or ETFs), all you need to worry is about their expense ratio (money you need to pay them each year to maintain the fund) and brokerage/commission charges from your investment account. Everything else is noise pushed by the finance press.

Sure there is more to talk of when you think of taxes, but that is not a topic to worry even before you start off!

Investing is complicated because we are human

Evolution, we as humans are simply not programmed to plan and act for the long term. We are good at short term stimuli.

  • This is the reason its hard for us to imagine how life will be when we are say 60 years old and not working, specially when we are earning today.
  • This is also one of the reasons why we say, will take care of it later
  • Also the reason behind lack of discipline, and not able to retain weight loss over longer periods.

So, is there a solution to this?

There is no silver bullet here, apart from making yourself aware of the two problems you can fall into:

  • Unable to start investing: This is by far the serious one, not starting means you have simply paralyzed yourself. The loss is all the compounding. So get shit done! There is no other way.
  • Investing too little: Well done on starting, but are you at the optimal level? You should understand the costs of not doing so, use a compounding calculator and find out how much you’d lose for every $$ not invested. Once at optimal level, simply Automate and do not bother looking into it each month.

Did you ever feel that investing is complicated? Please share your experiences with us.

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