​Becoming a Better Investor Means Accepting Responsibility

Modest Money  |

It’s impossible to go through life without risk. Sure, you could buy a bunker in the desert outside of Albuquerque, deep beneath the threat of disease, war, and social interactions. But your options in life would be strictly limited. To get a little more out of life, you have to venture outside the proverbial bunker into the world of possibilities. Investment is a way of taking on more risk, for the possibility of more reward. But even among those who decide to invest (roughly 50% of adults never invest at all), there is still great variation in the amount of risk/responsibility that people are willing to accept for their investments.

The conservative investment advice that’s usually given to new investors isn’t bad. More times than not, it works just fine. We’re talking, of course, of long-term investment models, using ETFs and mutual funds to achieve wealth...eventually. For the most part, these investments are hands-off. One well-known brokerage source in the public eye describes their take on this model as “set it and forget it”. Regardless of the broker, the average mutual fund/ETF investor will put regular financial contributions into a fund which was put together by an investment manager, without much/any input from the investor.

The strength of this model is that it works more often than it doesn’t. Given time, an investor’s funds will grow as long as the overall market grows. The weakness of this model is that the wealth grows slowly, so that by the time the investor has enough money to pay for all the things they’ve wanted to own and experience, they’re too old to participate to the extent that they could have years before. The passive investment retirement model also puts the investor in the passenger seat of their financial growth. For people who spend 40-50 hours (or more) at a career primarily for the money it brings into their lives, it doesn’t make sense to use a salary inefficiently. That’s just more work for no reward.

The only way to make investments more efficient and profitable in the short term is to take on more risk/responsibility. Some brokers, like Motif, add investor control to the equation (compared to the above examples) by allowing investors to have a lot more choice in the shares they want to put their money into. Of course, this element of choice means that investors could choose poorly. Still other brokers put all of the responsibility in the hands of the investor, allowing them to select funds based on their own research, whether or not they’ve been deemed appropriate by a board of directors.

From here, investors can use brokerage services that let them buy individual stocks, regardless of risk. Beyond this, the sky’s the limit. At every level of investment, there are people who know much more than anyone else. There will also be individuals who don’t know what they don’t know, putting them in a line to lose lots of money in short order. As you can see, there is a spectrum here. You, the investor, have to find out the appropriate place for yourself in the range of risk and responsibility. If you want to make money before you’re old, you’ve got to take on more responsibility. Just be willing to balance this responsibility with knowledge, so that these riskier decisions pay dividends.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.



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