Short-term excuses contradict long-term interests

What reasons do you have for
not investing in your future?

People who make bad money decisions as well as bad investment decisions can often rationalise them. The most common excuses are included below, but there are plenty of others. These arguments are often elaborate short-term excuses that we use to justify behaviour that often contradicts our own long-term interests.

Wanting to wait until things become clearer
It’s understandable to feel nervous about volatile markets, but waiting for stock markets to become more stable before investing often results in missing the return that goes with the risk.

Investors are often guilty of anchoring – focusing too heavily on arbitrary targets such as the FTSE 100 breaking through 6,000 points or falling under 5,000 points; however, this is an illogical thing to do.

The FTSE 100 figure today is the correct figure. It is the correct figure based on all the buying and selling decisions of all the millions of market participants around the world. If something unpredictable happens at the weekend, it will affect the stock market value on Monday but none of us can foresee that.

Not wishing to take any more risk
By focusing exclusively on the risk of losing money and paying a premium for safety, we can end up with insufficient funds to retire on. Avoiding risk also means missing the upside.

You need to be happy with the ups and downs that a portfolio will give you. Some people would be distraught with a 10 per cent loss and would pull the money out, never to invest again. Yet others are comfortable seeing investments go up or down 50 per cent in a year.

Risk is a very personal thing and a lot depends on what the money is actually for and the timescales involved. If you are 25 and the money is going into a pension, you won’t be able to touch it for 30 years anyway. Even if you are quite a cautious person you will probably be happy to accept some ups and downs. Perhaps this risk with pensions is balanced by taking a cautious approach with other aspects of their finances – overpaying a mortgage, for example.

Many people think cash is risk free, but that simply is not true. After tax and inflation the real value of most cash savings is diminishing each year. Over one year that’s not really a problem, but over a number of decades it can be a big risk to your financial security.

Living for today; letting tomorrow look after itself
Unless you have very wealthy parents or win the lottery, tomorrow probably won’t look after itself. If you spend all of your income when you earn £50,000 p.a. you’ll probably find a way of spending it all when you get a pay rise to £75,000 – this is simply human nature. If you don’t get into the discipline of saving early on, you will find it very difficult to later in life.

The State Pension is very modest and the age at which you can draw it keeps increasing. The days of a job for life and a final salary pension at the end of it have long disappeared in the private sector and are being diluted in the public sector too. It is therefore up to us as individuals to plan for our own futures. We all need to be realistic about what our retirement might look like and we all should have a personalised plan to try to get there. Retirement doesn’t just need to be about pensions.

Most people can live for today and put money aside for the future. You just need to keep within your budget and accept that you can’t have everything.

Disregarding capital gain just for the income
Retired people will often focus on what income their investments are likely to produce. Yield is an important part of total return and a high yield clearly sounds more attractive than a low one. However, by its nature this has to mean that something else is being sacrificed. For stocks, logically speaking this has to be the stock’s growth prospects given that more profit is being paid out instead of being reinvested into the business.

For bonds, the higher the income the more at risk your capital is. Just because Greek government bonds pay a high yield doesn’t necessarily make them a good investment. Looking at total return, in the context of your personal financial goals, is a much more logical way of viewing portfolio construction. It can also be more tax-efficient too as it allows you to focus on both income tax and capital gains tax planning opportunities.

Save yourself time and energy
When it comes to personal finance, perhaps the most common excuse of all is “I’m too busy to think about this,” and the reason might really be due to another common excuse which is “it’s too complicated”.

Personal finance can be as simple or as complicated as you want it to be. Many aspects of personal finance can be put on “auto-pilot”, saving monthly into an ISA for example, which leaves more time and mental energy for areas where a bit of focused time and effort could make a big difference to your financial wellbeing.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.


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