We’ve learned a lot about investing over the past 60 years, a period that has seen many breakthroughs in the world of finance. What we know comes from studying public markets and is grounded in serious academic research. The lessons are clear: Investing in markets is an excellent plan for meeting long-term goals, like maximizing your retirement income. And when you develop a deeper understanding of public markets, you can cultivate a sense of optimism about investing.

There are two ideas are at the heart of this approach:

First, markets provide a way for both sides to win. To trade an investment, both buyer and seller have to agree on a price. If either side felt the price wasn’t meeting his or her needs, they wouldn’t trade. This is what we mean when we say market prices are “fair”.

Second, markets allow all of us to invest in human ingenuity—and get paid for it. At phwealth, we want to help as many people as possible access what public markets offer in investment opportunities and wealth generation so they can live better lives, with better financial security.

Even though the investment principles we run on are simple, they aren’t always easy to understand and accept. Many people struggle with some of the basic concepts behind long-term, highly diversified investing—it’s human nature.

Here are some of the objections we’ve encountered. We think most of us can relate to at least one of them.

1.           “I don’t see the point of investing in the first place.”

Any decision you make with your money—even not investing—is an investment decision involving risk and rewards. You’re focused on the risk involved in investing. But what are you risking by not investing? You’re risking today’s money having less value in the future because of inflation. You’re missing out on the magic of compounding, which Albert Einstein is said to have described as the Eighth Wonder of the World. (Assuming an average 10% return, as the S&P 500 has returned historically, money invested in the stock market doubles in value every seven years.)

You’re forgetting that diversification—spreading your investments across many companies—is a powerful way to minimize risk.

When it comes to personal goals, everything has a trade-off. Most people don’t have enough money saved to be able to live adequately in retirement without earning an investment return. In simple terms, by not investing, you risk outliving your money.

2.           “I’m too late. The train has left the station.”

It’s natural to feel regret about decisions you’re unsure about. But it’s never too late to invest. Every day, we expect the stock market to go up. Otherwise, investors would find other things to do with their money.

3.           “When it comes to investment advice, I don’t know who I’m supposed to trust.”

Here’s the good news: You don’t have to “trust” anyone. Just trust the market. No human being can tell you more than the market has already told you through the process of setting prices.

Markets are always reacting to new information in real time. Anything you hear a pundit say on TV or read on an internet message board is yesterday’s news. And it may seem obvious, but you must remember: There’s a difference between fact and opinion. Cultivate a healthy sense of scepticism when it comes to financial pundits; remember that it’s not news, but entertainment. And if you need a trustworthy sounding board, consider meeting with an independent financial adviser, whose interests are aligned with your own.

4.           “It’s too hard to figure out when to get into—or out of—the market.”

Human beings have a natural urge to transact. But getting into and out of the market is gambling, not investing. If you treat the market like a casino, and you’re picking shares or attempting to ‘time the market’, you need to be right twice—in an aim to buy low and sell high. Fortunately, you don’t need to time the market to have a good investment experience. Professor Eugene Fama, a Nobel laureate in economics, showed that it’s unlikely for any individual to be able to pick the right stock at the right time—especially more than once.

Once you decide to be a long-term investor, the timing debate is off the table. And that’s a big relief.

When you diversify across the whole market, you’re really investing in basic human ingenuity to find productive solutions to the world’s problems. And that will never change. Humans will always do that. They do it for themselves, and their kids.

5.           “I’m afraid I’m going to lose it all.”

If you’re lucky enough to live a long time, you’ll face some big market downturns. That will never change. But you’re much more likely to “lose it all” with concentrated investments than with a well-diversified portfolio.

Individual investments may go to zero, but the modern-day market has been around for over a century, has an average annual return of 10%, has never lost more than 43% in a year, and has always recovered.

6.           “I don’t know what I don’t know, and that makes me nervous.”

It’s okay to be nervous! If investing was always positive, there wouldn’t be an expected payoff. For an investment to offer the possibility of a return above cash returns, it needs to carry risk.

Uncertainty is scary, but without uncertainty, there would be no “extra” return. Share market behaviour is uncertain, just like most things in our lives. None of us can make uncertainty disappear but dealing thoughtfully with uncertainty can make a huge difference in investment returns and the security of your lifestyle long term. Your challenge is to stick with an established plan for the long term and this is where a financial adviser can help.

7.           “I only want to invest in companies I’m familiar with.”

Share markets contain all the publicly traded companies available in the world. Every company has an incentive to do better. Investing in human potential across a broad range of companies is more likely to pay off than trying to predict which individual company is going to perform best.

If you restrict yourself to only those companies you know or can research yourself, you are increasing the risk of losing the lot without picking up any extra expected return. Whereas you can do well by investing broadly, without having to pick winners, and getting it wrong.

8.           “I’m afraid there’s going to be another financial crisis.”

History shows us that there’s always going to be another financial crisis—and another recovery. Every crisis has a different cause, so it feels different every time, but the market has always delivered a positive return, once things settle down, over the long term.

Crises, by definition, are not predictable. Markets are forward-looking and recoveries remind us of the power of human resilience.

9.           “I’m overwhelmed. It’s just too much to think about.”

Inertia is a powerful force. Thinking a little bit about it right now means worrying a lot less in the future. Inaction comes with a price, but this is where a financial adviser can really help.

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

When it comes to investing for your family’s future, there is no minimum. The first and most important step toward investing in the future is to start saving today. It’s human nature to procrastinate. Half the battle is just getting started. This can mean “paying yourself first” by directing a small percentage of each pay into a savings account and this is how KiwiSaver works.

Putting money aside regularly becomes a feel-good habit, like exercise. You can witness your own incremental progress and the boost in self-esteem it brings. You’ll be surprised by how easy it is to set this in motion, and you’ll feel good—for yourself, and your family. Just look at these numbers: If you invest $200 today and then $200 per month for 30 years with a 6% return, you’ll end up with over $200,000.

For good measure, I will add one more Obstacle to Investing, -

11.           “I want an adviser with the highest return.”

This is a good one and a hard obstacle for investors to get their head around.

The highest return will come with the highest risk and just because it has paid off in the past does not mean it will pay off in the future.

Past returns are not a good indicator of future returns.

The first step with investing is to decide how much risk you are willing to take. This question relates to what portion of your investments you want to allocate to ‘volatile’ shares as opposed to ‘steady’ fixed interest.

It also relates to the underlying investment philosophy being employed. Are you trying to shoot the lights out by just picking a few winning companies, or are you happy to collect the market return by being fully diversified? Are you wanting to invest in just the largest companies, or are you willing to invest in the smaller and less popular companies that will pay off in the future but may spend many years lagging the big popular companies? Do you want to screen out undesirable companies that you don’t agree with, like tobacco companies?

Lots to think about, but made easier with the help of an independent financial adviser.

Keep asking great questions …