Investing is hard. In fact, it is so hard that the combination of a decent income, financial literacy, and financial discipline is so rare that it effectively functions as a superpower. Today we’re going to talk about twelve reasons why investing is so difficult.

# 1 You Need to Have Something to Invest

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Inexperienced investors focus on the investment, while those in the know focus on having something to invest. Having something to invest requires three things:

  1. A reasonable income
  2. The discipline to not spend your entire income
  3. Avoiding loss of earnings/capital through divorce, death, disability, liability, and speculative investments

You’re going to need a fair amount of each of those things to be successful, although you can often make up for a low amount of one of them with an extreme amount of another.

# 2 Wall Street is Out To Get Us

By Wall Street, I refer to the financial services industry. This can include bankers, insurance agents, stock brokers, attorneys, accountants, investment managers, financial planners, and advisors of all types. At the end of the day, these professions exist to transfer money out of your investments and into their investments. That’s not to say there are never times when they add more value than they cost. But in investing, you get what you don’t pay for. The less you pay in fees, the more you have and can use to save, invest, and later spend. The successful investor is very fee-conscious. She knows what fees she is paying and evaluates them periodically against the value received. She understands the financial conflicts of interest of her advisors and weighs the advice with them in mind. She completely avoids the vast majority of financial services firms and professionals like Odysseus tied to the mast.

# 3 Investing Takes Too Long

Successful investing is all about the “get rich slow” plan. That would be fine if we weren’t both impatient and mortal. Most reasonable investing plans span decades. Juxtapose that with our attention span, that may be minutes at best, and you have a recipe for failure. Jack Bogle has repeatedly said that the three most important words in investing are “Stay the Course.” It actually doesn’t matter what your investing plan is, as long as it is something reasonable. What really matters is that you can stick with it in the long run. Better to be 60% stocks and stick with it than 80% stocks and bail out in a bear market.

# 4 We’re Competitive

I like competition. I thrive off of it. As a kid, a friend and I would play trampoline basketball. The game would last hours because neither of us wanted it to end. We didn’t really care if we won or lost, but we wanted it to be close. “Win by two.” “If I make this shot, I’m back in.” “Make it, take it.” “Dunks are worth two.” Nobody ever asked, “Why’s James crying?” because James didn’t cry. It should be no surprise that despite relatively humble beginnings, one of us founded The White Coat Investor and the other one is a successful Chief Investment Officer of a private equity firm. Now, most people probably aren’t as competitive as we are, but most people ARE competitive, particularly those who earn enough to actually be successful investors. However, when it comes to actually winning at investing, competitiveness is bad because it leads to two problems:

  1. Keeping up with the Joneses. If you try to keep up, you spend too much and have nothing to invest (see # 1 above).
  2. We focus on beating the market or other investors rather than our own financial goals.

You see, investing is a single player game; it’s just you against your financial goals. You don’t have to beat the market. You don’t have to beat your neighbor. You don’t even have to beat your brother-in-law. The truth is we can ALL win. But if you don’t keep that in mind, you’ll end up succumbing to FOMO- Fear Of Missing Out and end up buying high and selling low, a financial disaster.

# 5 It Requires Hobby-Level Dedication

Investing is a great hobby, perhaps the best-paying hobby there is given the cost of high-quality financial advice and management. But our financial world is so complex that if you don’t take up investing as at least a minor hobby, you probably won’t become good enough at it to be successful. That’s unfortunate since it is such an integral part of a successful life. Plus it’s boring for most of us. Here we are, with a second job as our own pension fund manager in our 401(k) world, and we know nothing about doing that job and have little interest in learning. What a tragedy.

On the other side of the problem are people who take it to the extreme. All of a sudden, all of our decisions are first weighed from a financial point of view, even when that is inappropriate. Perhaps we become miserly. Perhaps we become consumed by a quest for more, more, more. Perhaps we just can’t step back and end up living an unbalanced and unhappy (even if financially successful) life. Picture the 65-year-old retiree who spends 3 hours a day reading up on stocks. What a waste.

# 6 Wealth is What You Don’t See

This confuses all kinds of people. Lots of people think they want to be a millionaire, but what they really want is to spend a million dollars. Unfortunately, those two things are complete polar opposites. You literally become a millionaire by NOT spending the $1 million that you could have spent. This is surprisingly non-intuitive and I’m convinced not understanding it keeps many from being successful. So figure out what you want – to have lots of money or to spend lots of money, and take the steps required to get there.

# 7 The Frank-Starling Curve of Investing

The Frank-Starling Curve is well-known to physicians who care for congestive heart failure patients. The goal is to have the patient’s blood volume high enough to maximize the heart’s stroke volume but no higher. Too low, you give them fluids. Too high, you give them diuretics to take off fluid.

Investing is somewhat similar. Increasing the time and effort you put into it helps, but only up to a certain point. Beyond that point, you’re often hurting yourself. Someone who is invested in crummy mutual funds and never rebalances is on the left-hand side of the curve and would benefit from more effort. A day-trader is way off the right side of the curve. It isn’t intuitive, but at a certain point, more effort and time spent on the task is more likely to hurt than to help.

# 8 Debt Numbness

Spending borrowed money for educational expenses and basic necessities for four years in medical school (perhaps eight or more if the doc also borrowed for undergraduate) and then allowing that debt to become even larger due to deferment, forbearance, low Income Driven Repayment payments, or special resident refinancing programs for three to seven more years of training causes doctors to be numb to debt. Everybody they interact with owes hundreds of thousands in student loans. It feels normal. Due to the long period of indebtedness, this attitude toward debt extends to auto loans, credit cards, 0% down doctor mortgages, and even borrowing for the education of your own children! This debt anesthesia can severely retard your ability to build wealth. Instead of your income being used to live the good life and build wealth, it is used to service payments. You’ve become a fantastic investment for somebody else!

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Investing is hard, but it’s no harder than finding passable highways in Baja California

A related problem is the concept of “good debt.” I read about this all the time in blogs and books, although the definition varies. Mortgages get thrown into the “good debt” category because they may be tax-deductible and the underlying asset may appreciate. Student loans get thrown into that category because “they help you earn more.” Low interest rate debt gets thrown in there too, no matter what the original purpose of the debt was. There is no doubt that borrowing at 2% and earning at 8% is a winning formula. The problem is that the concept of “good debt” worsens debt anesthesia. You no longer feel like your debt is an emergency because it’s “good debt” so you justify not paying it off as quickly as you ought to. In addition, borrowing at 2% and NOT investing at 8% IS NOT a winning formula, but that’s what most who justify their debt because of its low interest rate do. Any time you have debt and you’re spending money on anything non-essential, you’re essentially borrowing to fund that purchase. You wouldn’t borrow at 4% for a Hawaiian vacation? How is that different from going to Hawaii while you still have 4% student loans? And 8% student loans? Are you nuts?

It’s a simple fact — money that is going to pay the interest (and even the principal) on your past spending cannot be invested for your future spending.

# 9 You Change

Another issue that makes investing difficult is that very little is static, especially in your life. Your spending, your consumptive desires, your health, the size of your family, your tolerance for risk, and your income all change over time. How can you set a retirement goal if your spending keeps changing? How can you set a savings rate when your income keeps changing? How can you set an asset allocation when your risk tolerance keeps changing? This need to stay the course is constantly butting up against the fact that the course is constantly changing, and that makes financial planning and investing a tricky business of constant adjustments.

# 10 The Investor Matters More Than the Investment

Too many investors focus their efforts outward, constantly searching for the best investment. In reality, they should be focusing inward, making themselves the best investor possible. The truth is that your actual investments, your asset allocation, so long as it is reasonable, matters far less than whether or not you can stick with it through thick and thin.

# 11 We Are Poor Judges of What Will Make Us Happy

“Mann Tracht, Un Gott Lacht” is Yiddish for “Man plans and God laughs.” It turns out we are incredibly poor judges of what will make us happy. We think buying things, or buying experiences, or traveling, or giving money away will make us happy, then are surprised when the happiness we were seeking turns out to not exist or to not last. The problem comes when we start making long-term financial plans and it turns out that isn’t what we want after all. At its extreme, this leads to divorces and massive repeated home renovations, both of which can be devastating for wealth building. But even in its more minor forms, it can be costly.

# 12 We Don’t Do Boring Well

Good investing is boring investing, but looking for excitement with your investments is a good way to go broke. Our desire for novelty is a major impediment toward staying the course with a long-term sensible plan.

Those are the twelve reasons investing is hard. Conquer them and you will find a simple, but not easy, pathway to wealth.

What do you think? Is investing hard or easy? Why? Comment below!