Buying Stocks Is Not The Default For Investing

As an Investment Coach, I help a fair number of people who are new to investing and spend my time teaching and engaging with them on how to make successful investment decisions on their own. When I meet people in person and online I often get questions such as: “I’m new to investing…what stocks should I buy?” or “I’ve just inherited $20,000. What kinds of stocks should I buy that will make money for the next x years?” I get A LOT of these and over time I’ve been wondering how people arrive to the default position of buying stocks when they think about investing? Why not Exchange Traded Funds (ETF)? Why not bonds? Why not real estate? Should they even be investing in stocks? I think part of it is our social circle. When we see family, friends, and colleagues investing in stocks, we anchor to that default that we should be doing the same thing. Technology that can flash real-time stock quotes and news 24/7 can embed a default position of buying stocks. Then there is the investment industry that has acted as a gatekeeper for traditional investing guidance. When we interact with an advisor and specify that our financial goals are to grow our hard-earned savings, the conversation quickly moves to discussing stocks and equity products.

Is this true and applicable for everyone? Is the default position for investing a requirement to buy and sell stocks? I don’t believe it is…and I’m someone who teaches people how to buy and sell stocks!

Morgan Housel of Collaborative Funds wrote an excellent blog, How to Talk to People About Money ¹ . He cites the experiences of the medical profession back in the early 20th century, specifically a case where a person who went to see a dentist who proceeded to administer a treatment involving anaesthesia. Unfortunately the treatment resulted in the patient dying. The patient was never advised or given an option about the treatment. The dentist just did it because at that time, the medical profession gave doctors the authority to make decisions on behalf of the patient, with no consent required. The rationale was someone who was sick and comes to see a doctor wants to be relieved of that sickness immediately and the profession has identified universal solutions that will cure the sickness. The approach is a lot different today as now doctors require consent and provide different treatment options and the patient selects the option that they are most comfortable with. There is a greater awareness and sensitivity by the medical profession that a universal treatment is not appropriate for every person because every person has different pain thresholds and other personal, even religious considerations that should be considered.

Housel’s uses this analogy to highlight that the investing industry is operating in a similar approach as the medical profession of the early 20th century. The financial services industry has determined that people who come to see them want to be wealthy by default and have developed universal products and solutions to help them become wealthy. They have the answer. These universal solutions all come with a default of having exposure to stocks.

Housel references Behavioural Economist, Daniel Kahneman’s story of going to see a financial advisor. He said he didn’t want to be rich. He was comfortable with his current, modest lifestyle and just wanted to maintain it. The advisor said they couldn’t help him and sent him off. At first, he couldn’t understand why but realized that his case didn’t fit into the default paradigm of the advisor (people want to be rich) and those universal solutions they have developed and sold don’t fit with Kahneman’s requirements.

These cases highlight a couple of reality checks that challenge the default position of having to buy and sell stocks. The first is for a significant number of people, they don’t want to be rich “I won the lottery” style. People are happy to maintain the current lifestyle they have. The second is we all have different thresholds for investing pain. We have different goals and are in different stages in our life. We have different priorities and passions and universal solutions are not going to help us become comfortable with investing pain. Finally, I believe many people out there just couldn’t be bothered to learn about stocks. They like the sound bites of seeing stock prices going up but are not willing to put in the time to understand and practice. Despite these realities, we are pushed to think that if we want to invest, we must buy bank stocks and Apple shares.

Before I start teaching someone the mechanical and behavioural aspects of investing, I spend time to make sure their default investing position is reflective of their personal and life situation. For some people the default investing position is indeed buying and selling stocks because they are willing to commit time to learn and to meaningfully show up and engage in the process. For most, investing in stocks is not their default position, but there are other more low cost solutions such as ETFs that can get them the appropriate exposure and where the training can be customized to develop those investing competencies. We all have different investing default positions that require unique solutions…and that’s totally OK.

So if you are considering investing, do not immediately settle for the default of buying and selling stocks. You have options. You have to first define an investing path that is compatible with your lifestyle and goals. Once that is defined, the universe of investing products, strategies and competencies needed to meet your financial goals will become clearer.

Aman Raina is an Investment Coach and Founder of Sage Investors. He can be reached through his website: www.sageinvestors.ca), and Twitter (@sageinvestors)

¹ Morgan Housel, http://www.collaborativefund.com/blog/how-to-talk-to-people-about-money/ March 29, 2018