In the last five years, we’ve seen the explosion of alternative investment avenues, especially through apps. While technological advances (computers, algorithms, the internet, you get it) certainly make investing a better and easier experience than it’s ever been, they’ve also promoted some troubling trends in popular consumer investing apps.
Here are a few ways your investing app is ruining your retirement:
- Investing apps are built for active trading which loses money compared to the market. In order for investing apps to be interesting, they promote active trading. No one wants or needs an app to help them buy and hold and never make trades. Unfortunately, active trading is a recipe for disaster. Even professionals lose to the market when they actively trade stocks, not because of any inherent flaws in themselves, but because it’s literally impossible to consistently beat the market.
- No great offerings. Because they’re designed to encourage active investing, investing apps don’t offer many great investing options. Even if you could ignore all the crap, the best funds aren’t in there. Sure, you can find some cheap ETF and index funds, which aren’t the worst options in the world, but they’re definitely not the best. And investing apps know you might try them out, but ultimately you’re going to be moving money around.
- Your earliest years are the most important years and you’re wasting them. Investing apps appeal unilaterally to younger people. The great thing about investing when you’re young is that money invested early will compound far more significantly over time than money invested later. Unfortunately, many young people fall prey to these investment apps which do the opposite of maximizing investment dollars.
- Mis-education, worthless news. In order to make active investing seem legitimate, investing apps often share news and information regarding the market. Unfortunately, the news is not helpful for investing. Instead of learning about how the market works and how to prudently invest money over time, these excerpts simply validate terrible investing strategies.
- Encourage bad behavior. This is the biggest problem. Instead of educating investors, investing apps take advantage of them. Active investing feels right, it seems legitimate, and investing apps only encourage that feeling. Unfortunately, the feelings of investors have no correlation with successful investing, if anything they’re negatively correlated.
So dump the investment app. Learn about important investing concepts like Efficient Market Hypothesis, Modern Portfolio Theory, the Three-Factor Model. Get a good advisor who will get you into the best funds and help you remain disciplined through scary markets. Take your purpose seriously, it’s probably something worth more than speculating and gambling with your investments.
It’s 2019. The industrial revolution began over 200 years ago. Political democracy was ratified almost 250 years ago. Capitalism began its ascent somewhere around 500 years ago. In 2019 the world is a much different place and changing at a much more rapid pace than ever before. The rise of technology, the commitment to political freedom, and the resilience of free markets have resulted in remarkable life improvements. We have more free time, we understand the concept of a vacation, we even live longer. But maybe the most impressive change in the last 500 years is the incredible increase in the number of options we have. We’ve got multiples of ketchup options at the grocery store, we’ve got multiples of grocery store options within driving distance, we’ve got endless options for entertainment built right into our TVs, we’ve got so many bars and restaurant options we can’t keep track of where we’ve been and where we’d still like to visit (just me?), we’ve got innumerable product options staring at us from our phone screens, we’ve got travel options, vacation options, gym options, school options, cell phone options, clothes options, housing options, the list goes on. The sheer volume of options seems a little crazy when you think about it, but we love all our options. Options are great, they’re an essential part of freedom, they give us the ability to direct our lives to a degree. For most of history people didn’t have many options. As far as work went, the option was to essentially do what your parents did (which was probably farm). Now we’ve got thousands of career options, and that’s a wonderful thing.
The flipside of all these options is the requirement to make lots of choices. Options are great, choices are work. They’re work because you have to sift through all of the options, but more so because you eventually have to make a decision. The word ‘decision’ comes from the Latin root ‘decidere’ which literally means ‘to cut off from.’ Making a decision involves choosing one option instead of a bunch of other options, it means cutting off the other options, it means giving up the other options. So that’s a problem, what if we really liked having all those options? Options equal freedom!
The real problem with our abundance of options is that it gives us the illusion of freedom but it’s often crippling. We begin to idolize our options to the exclusion of making decisions, to the exclusion of making progress. We become content to maintain the beautiful platter of options without ever making a commitment to any. I suspect that this is especially true in our work. I love to vacillate on different strategies for my business, different side-hustles I could start, different events I could host. I love to ‘keep my options open’ so to speak. But in the end, that’s just wasted time. You could spend your entire life keeping your options open and never accomplish anything. The fear is that once you commit something you’ve got to be all in and you’ve got to say ‘no’ to the other options, but the alternative is to live a life of waffling waste filled with eternally open options. That’s definitely worse. So make a decision!