Barrier of entry to investing

Investing is without a doubt quite an awe inspiringly huge field and it’s understandable why a lot of people never really get into it. However, if you break the problems that stop people from investing into smaller pieces then the barrier of entry can hopefully be overcome more easily.

1. “I don’t have enough money to invest.”

This is of course perfectly understandable – people need to buy food, pay rent, pay for kindergarten fees etc. The first problem here is the fact that most people never really define how much money they need to invest. There are of course really demanding fields like real estate and bonds that need thousands of euros to start. There are also fields with a much lower minimum amount – social lending for one (you can start with 10€), investing into funds (I don’t particularly endorse this, but some banks let you start with 20-30€ per month), investing into stock (1000€ is already a reasonable amount of money to purchase your first stock). You could also start a company – technically you just need to pay the ~185€ for the registration fees!

The second problem is that people rarely look critically at how to find this extra money for investing. Of course, there are ways for extra income, side gigs, finding work from GoWorkABit, doing overtime or side projects etc. Another, and even easier way usually is to just save more money – being able to set aside an extra 5% per year, means anything from 300-1000€ per year depending on your salary! That’s enough for 30-100 loan pieces on Bondora or about 70 stocks of TVEAT dividend stock!

2. “It is all so complicated.” (aka the “I don’t know math” argument)

I’m surprised by how many people get really caught up in this argument. Really, not a single person who has ever started investing has never ever known everything there is to know about investing. An even bigger surprise – a lot of people who are into investing do not have economics degrees or a great understanding of mathematics. What they do have is a willingness to learn and a positive attitude.

If you find your lack of knowledge a serious problem that is truly stopping you then if you’re reading this, you have a great resource available – the internet. Even starting off Wikipedia on topics such as investing, interest, stocks, risk management, diversification etc will get you a great basic understanding. If you’re already looking for more details then open up Investopedia. If you’re more into learning from other people’s experiences then just open up the Bogleheads forum and read through the top posts! In the year 2014 lack of information isn’t a valid excuse in ANY situation.

3. “It’s too risky, I’ll just lose it all.”

This at least has some reason to it. You don’t want to get started carelessly and just lose all your money in a few bad deals. This, however shouldn’t paralyze you with fear and stop you from ever getting started with investing. This is why you read about risk management and diversification. This is why you do research and use logical thinking.

There isn’t a single thing in life that is risk free. People seem to think that them having a job is risk free – that they’re very unlikely to lose it. The recent crisis really showed how untrue that was. While your boss might leave you and your job might be made redundant, your investments won’t disappear on you in tough times as long as you take reasonable care of them.

Getting over the barrier of entry

1. Make a plan for how much money you’re planning to invest (what is your final goal?)

2. Look over your finances to see if you can generate extra income OR save more (set monthly goals)

3. Choose a few fields of interest and just READ about them (either books, blogs, forums are OK, just remain critical)

4. It’s fine to start slow and with smaller amounts of money to get a feel for it (just make sure fees don’t eat your money)

5. Find friends online or offline who share similar interests (even better, get a mentor!)

6. Be able to tell if the barrier really exists or if it’s only in your head!

4 thoughts on “Barrier of entry to investing

  1. Hi Kristi. Firstly, great blog! The content is interesting, but more importantly it is inspiring to see other young people getting into investing and thinking beyond next weekend or paycheck.

    I’d just like to comment on your first point in “Getting over the barrier of entry”. I find it more beneficial, and perhaps a bit more motivating to actually invert the “how much do I want to invest?” problem. I like to pick an amount that represents what I’d want to be earning passively, each month, through investments. From that amount, I work backwards to figure out how much I would need to put in, in order to hit that number. I tend to work though a couple of approaches – P2P lending, dividend stocks, real estate etc. I keep all this in a spreadsheet. The numbers usually start out rough, sort of back-of-the-envelope calculations. Every once in a while I go back to it to add stuff, tinker and iterate.

    Personally, I find it more exciting mainly because of the process of fiddling with numbers and combining different approaches. It’s also nice because it really breaks the goal down and puts things in perspective. For somebody who doesn’t find number-juggling as interesting, it would make a great excuse to learn the basics and set some larger goals, rather than saying “I’m going to invest X € montly”.


    1. Hello, Karl! Nice to have you as a reader!
      I do agree that backwards planning is the key to financial independence as a whole. The problem that a lot of people encounter is the fact that if you’re just starting out from a very low net worth then the numbers that Excel tells you are very very scary and very huge.
      I enjoy running theoretical simulations on Excel, but I can see how people can get discouraged by the fact that if they have never saved any money then a FI plan tells them to save 500€ per month! It takes a certain type of brutal rational thinking to look at those numbers objectively. You’re lucky if you have that sort of thinking, but most people sadly don’t.
      I do think that basics in financial planning should be taught for this very reason – it’s a lot easier to make a plan of some sort if you have numbers to back it up and if you have an understanding of how much money you actually need to manage your monthly expenses. The vague idea of “I’m saving” generally won’t get you closer to early retirement.

  2. The task of getting passive income streams large enough is not easy and takes a long time. I agree with Karl that a good starting point is to figure out how much you need. I also agree with Kristi that the number is scary. “Oops, I need a million dollar and my monthly income is $1000, What do I do now? Save every cent I earn for 1000 months? Oh, that’s my total income for 83.3 years. This is impossible”

    As we all know it wouldn’t work without the help of making the money work for us. (I personally prefer investing in the stock market). Even so it’s a huge task and I’m afraid most of us should need to save more than we easily can, to reach the goal of financial independence. As Kristi mentioned in an other post there are some extremists who actually do this and sacrifice almost everything, even coffee, to gain their independence.

    That’s not for me so I resort to the simpler way of just doing my best and save what I can and over time try to learn more about the aspects of investing. The good news is that investing is no rocket science – in my opoinion (almost) anyone can do it even if the financial advisers want people to believe that they can’t. The bad news is that unpleasant surprises appear when you least expect them to 😮 It’s very fun to invest in a bull markets like we’ve had the last 3-4 years or so but the bear market after the Lehman Brother’s crash was certainly not very pleasant. During such periods a long term goal, and no debts, helps a lot :)

    1. I completely agree with your last point! Last numbers about Estonia surprised quite a few people because official numbers say that the economy is actually declining, not growing. The negative interest rates decided on by the central bank might also sabotage some well made plans once the overall impact to European economy becomes apparent. Having been reasonable with money and not overextending does make it a lot easier and less stressful to manage situations like that.

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