Why don't people invest?
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bostonerimus wrote: »Maybe assessing someone else's risk is easier that assessing your own and risk in engineering is far more easy to quantify and model than in economics and investing. Maybe it just comes down to psychological makeup.....which end of a normal distribution do you concentrate on. It's hard to look at an efficient frontier and actually back up the historical numbers with your own cash when the future is still out there waiting to mess you up.
I wouldn't wholly agree, I work with natural materials and the uncertainty is often larger than you might find in investing. Utilising Monte Carlo analysis is far easier in economics, at least in certain aspects, than I'm used to applying ti within science and engineering.
There's also the fact that economics is the dismal science because it obviously isn't a science, it's far more psychology than able to be subjectively analysed.
There's also the fact that it's only in economics that the rules can be changed arbitrarily, let's try zero or negative interest rates, this quantitative easing isn't really money printing, it's something far cleverer etc etc
Once you realise that the system can always be changed to protect vested interests then that should change the psychology of many people. Unless you follow the wall of money generated by zero interest rates and QE into higher risk assets then you will suffer. Moral hazard has to be maintained where it can lead to the collapse of financial systems and the wider system after all.0 -
I think part of the answer is that many people are up to their eyes in debt and just do not know how to manage their finances.0
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Depends on attitude to risk if its shares etc and maybe some people just can't be bothered?! Personally I'd rather have cash in the bank knowing its there if you need it. I've had investments in the past that have lost money at the time needed to withdraw so maybe it also depends on what people are planning to do with the money and when they need it by.0
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I agree and as a lot of people are not lucky enough to have final salary pensions, they will have to take an interest when they get near to retirement due to the pension freedoms now. As they will have to make a decision whether to stay invested, what to invest in, take a lump sum, buy and annuity etc. it could lead to costly mistakes if they don't take an interest and pick the wrong option for their circumstances.p00hsticks wrote: »Most of these people will be investing via their pensions schemes - they just may not realise it.0 -
Fireflyaway wrote: »Depends on attitude to risk if its shares etc and maybe some people just can't be bothered?! Personally I'd rather have cash in the bank knowing its there if you need it. I've had investments in the past that have lost money at the time needed to withdraw so maybe it also depends on what people are planning to do with the money and when they need it by.
The general advice here would be to keep enough money in the bank to cover any foreseeable expenses, at the very least 3-6 months expenditure before you even think of investing.
Investing is what you do once you have more cash than you need.
Of course, a large percentage (the majority) of the population have such a small amount of cash savings that investments aren't even a consideration.0 -
Maybe they remember the experience of Japan.
Their index peaked at around 38900 in 1989. A figure it never reached again.
Some 20 years later in 2009 it was at 7054!
It is now at 22300.
So in this case if you were in Japan no matter how bad the interest rate in standard savings account was you would still be better of during those TWENTY years by keeping it in them rather than investing it.
As the old saying goes - the market can stay irrational longer than you can stay solvent.
Also as others have said and as the above demonstrates if your horizons are long enough the dips do not matter so much.
If you are near retirement you need to reduce you risk profile substantially lest any sustain fall in the market is not reversed before you run out of money.0 -
Perhaps a sub question should be 'Why don't women invest?' as I believe they are less likely even than men to have any investments.0
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There's a simple principle which many (for whatever reason) have failed to grasp. That is, if you are going to need the money in the near future,you should save it. But if you aren’t going to touch the money for a longer time frame, you should invest it.0
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Media, the general person etc don't make a lot of noise when equity markets are ticking along at 8% a year. As soon as there's a crash, everyone is screaming about losing money, it's all over the news, the papers...
When I talk to friends and family with loads sitting in cash, the vast majority think markets are still down since the peaks of '07.
I recently advised my partner (she's in her 20s) to move her work pension from the 'Balanced' option to the 'Adventurous' one (approx. 65% and 95% equities respectively). When she told other colleagues of similar ages they thought she was being reckless! Unfortunately, the vast majority with no interest or professional involvement (direct or indirect) in financial markets is simply uneducated when it comes to investing,0
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