Learning to Navigate the Investment Market Place

Survey results from Bank Rate, Gallop Pole and Pew Research all reveal less than 50% of Americans participate in the investment market. Investing in the market was defined by those who owned stocks, bonds, mutual funds, etc. in a retirement plan or regular brokerage account.

Key reasons why more than 50% of Americans don’t participate in the market is:

  • Not enough money
  • Fear of the market
  • Lack of education
  • No trust in Financial Advisors

These are valid concerns. Investment principles are not taught in school. Information on the internet can be convoluted, fragmented and confusing. Historical perceptions have created an environment where potential investors don’t trust advisors and brokers. Moreover, many people don’t have the financial resources to participate in the investment market. On the other hand, a large number of individuals have chosen other asset classes (real estate, art, cars, etc.) to invest their money.

Beyond these highlighted issues, those in the market are sometimes misdirected or instructed to invest based on 20th century principles and processes. The average investor has about $70,000 in investable asset while advisors target investors with $250k or more to invest. So, the average investor may be forced to make financial decision in the dark. Most people are told to invest for retirement, the long-haul, buy and hold. However, these principles may not hold true when processes and technology have changed the landscape in the 21st century.

The fact is the investment market is intimately woven in the United States financial system. You are involved in the market regardless. It’s incorporated in every facet of your life. You participate when you buy goods and services created and delivered by companies that utilize the financial system to raise funds to operate.

The financial system is made up of cash, stocks, and bonds. All other investment products like mutual funds, options, and ETFs are derived from one or a combination of the three. It is important to note, while you may not own stocks or bonds, most people do have cash in a checking, saving, or money market accounts. The balances in these accounts are used to make loans to companies. So you are indirectly involved in the investment world. The question becomes do you participate in a way that benefits you. Investors should be conscious, active and prudent.

All participants who live and work in the US financial system should be conscious of how it impacts their lives. When possible we should actively educate ourselves on how the system works and how we can utilize it. Finally, we should exercise prudence in our decision making rather we are directly/indirectly in the market or not.

The issues outlined in the surveys that have kept the investment rate low are not new. The solution is grounded in how we educate people on what drives the market, how it works, what to expect and how to manage. The solution should bridge the gaps between the novice, the do-it-yourself investors and the expert.  However, it shouldn’t be so overbearing that it will keep individuals from wanting to engage.

Everybody will not invest in the market. Participation in the market place is based on two variables that create three potential outcomes. The variables are: the willingness to invest and the ability to select securities. The three potential outcomes are:

  • If there is no willingness to invest chances are you are not in the market.
  • If there is a willingness to invest but not the ability to select, you may need an advisor.
  • If there is a willingness to invest and the ability to select, you probably are a do-it yourself investor.

Whichever group you fall in or in between, you are responsible for the level of success of your investments regardless of accountabilities. So, it is prudent that you have an understanding of the psychology of the market, knowledge of the financial tools that are at your disposal, and insight on basic portfolio building strategies.

If you want to learn more about how the investment market works and how to better manage your portfolio, manage risks, asset allocation and selecting securities, we encourage you to read Wyndon A. Hibler’s Navigating Oz: Gaining the Heart, Brain and Courage to Invest, available on Amazon.com, Kindle, Barnes & Noble and other outlets.

About the Author:

Wyndon A. Hibler has operations, research, sales and executive level experience in financial services industry. He has both retail and institutional client facing experience. He has been an institutional trader and portfolio manager. He traded equities and fixed income for retail and institutional accounts. At the same time, he helped develop solutions to manage high-net-worth client accounts.