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#24: My favourite way to think about investing, part 1
1st March, 2021
Welcome to the Idiot Money newsletter. The newsletter that gambles responsibly.
This week: becoming wiser with money by understanding that all investments are gambles, so it pays to understand what you’re betting on.
This is the first in a short series that dives into the ocean of choosing and managing investments in a way that leaves you neither drowning, nor strangled by seaweed and with a belly full of plastic crap.
First, a scene-setting introduction. The framework, implications, applications, and some calculations will follow.
All investments are gambles. Internalise the implications of this – learn how to make smart bets – and you’ll defuse the mental minefield of investment options.
Investing is scary and complicated, right?
You’ve heard you should invest… in something.
You’ve seen the graphs, the maps to ‘freedom’ and become convinced it’s downright irresponsible not to.
You’ve seen the scarcely believable compounding calculations and become a bit annoyed you didn’t start when you were 20, but know the next best time is today.
So after a few more months psyching yourself up, you dare to take a peek.
You’re pretty sure sticking your life savings in something you saw on the news, or in the paper, or on a Reddit messageboard, or entrusting your future financial status to an Elon Musk tweet is probably not terribly responsible.
So instead you go to whatever investing website charges enough to afford the most advertising (you’ll worry about that later – it’s not like fees are the same money that you’re trying to make) and take a look around.
Do you want to invest in shares? Funds? ETFs? Investment trusts? Other?
Shares of what? Apparently there are a lot of publicly listed companies in the world.
Funds of what? There are 4,000 of them too.
Maybe someone told you that Vanguard were the good guys in this story. You filter for them. There’s still 78 to pick from.
And so it goes on.
You watch an explainer video. It makes it sound simple, but it doesn’t tell you what to do.
So you quit. You’ll come back later.
You’d ask a possibly knowledgeable friend, but that would mean talking about money, which would suggest either you had money, or you didn’t have money, or… whatever. I’m told if I think about this anymore, my brain will melt.
Maybe you hire professional help. You’re not really sure what help it is you need, so you’ll never be too sure you’ve got it once you’re getting it, but best not to think about that. Just make ‘it’ go away. All that scary and complicated choice is someone else’s problem now.
It’s still your problem. It’s just no longer such a conscious one.
You’ve found the ‘peace of mind’ that every financial adviser’s website promises. But under the surface, something weird is still going on.
So desperate are we to find it, that we attach the label ‘peace’ to anything offering a hint of temporary external calm. We substitute peace of blind for peace of mind.
But what if this stuff weren’t all that complicated? What if you could confidently manage it all in 10 minutes a year before going back to something more interesting? What if thoughts of money were rare, calm, and positive?
The great news is that all *waves arms* this needn’t be scary. And it needn’t be complicated.
Fortunately, all the actually complicated stuff is completely irrelevant for you. Few children relish the first day of school. But then someone teaches you how to fish, and it all gets better. The only difference in learning about finance is that rather than giving you a textbook, you’re given a blindfold, told that the fish are sharks and are then charged a fortune for keeping Jaws away from your ankles.
As I say in the welcome page to the book, I believe that everybody already knows the majority of what they need to make the most of the money in their life… And the rest is ridiculously quickly learned. But it’s hidden.
The best way I know of thinking about it more clearly is not to cede to the temptation to run from the (perceived) ‘risk’, but to face it, and reframe it, to – somewhat counterintuitively – think of all investments as gambles, and go from there.
Understanding investments as bets can make them feel less risky, and set your relationship with them on more comfortable ground. It also cuts out all the needlessly complicated crap.
All investments are gambles.
This isn’t a message of fear.
It’s a message of hope.
We’ll see why next time.
If you don’t know what you’re paying for, you will default to whom you trust the most, which means the appearance of trustworthiness is the most incentivised quality for an ‘adviser’ to possess.
And the people best at appearing trustworthy (because they have no actual product to sell, not even a crappy one) are conmen.
Know how to manage your money yourself before deciding if you want to pay someone else to do it for you. This is why Part Three of the book (How to Invest Like a Non-Idiot) comes before Part Four (How to Get Help that’s Actually Helpful).