Young Canadian Investor #26 — When You Shouldn’t Invest
Yes, investing your money in stocks and bonds is a no-brainer most of the time. Why? Because the money you invest will grow over the long-term into a nest egg that you wouldn’t have otherwise had, and you, just like the rest of us, have dreams that require ample funding. Let’s put the breaks on that for a second, though, to consider a handful of situations where investing isn’t the best idea if you’re looking to live your best life.
When you’re in debt. This isn’t to say that you shouldn’t invest if you’re currently paying off debt, just that you need to have a handle on the debt payments first. If you can’t project into the future and tell me more or less when you’ll have paid off what you owe, you probably shouldn’t be investing. There’s no point in stacking money up for your future when the interest rate on your student loans or credit card is cutting into your bottom line. To put some numbers on it, it’s reasonable to expect a diversified stock portfolio to earn you around 7% per year over a few decades, while most credit cards charge you somewhere around 20% in interest. No matter how hard you try, 7 in the black will never make up for being 20 in the red.
When you’re lacking in human capital. Your human capital is the sum of skills you possess that allows you to go out into the world and have a professional life. I write a lot and have some investing knowledge, so that’s the wheelhouse in which I look for work. Your own areas of expertise will differ, but are no less important to how you’re going to use your time. When you break it down, there’s really no comparison between investing $1000 at a long-term 7% yearly return and using that money to learn a new skill that will up your income by 10 or 20k per year. Thanks to the Internet, you may not even have to spend any money. Places like YouTube, LinkedIn Learning, and Skillshare offer plenty of free content to feed your mind.
When you’re bored. So you’re looking for some entertainment and the thought of buying Bitcoin or a few shares of Tesla sounds like just the remedy. This isn’t necessarily a bad thing if you do your due diligence, decide the investment is promising, and limit it to an appropriate percentage of your portfolio. The problem is that kind of work isn’t everybody’s idea of fun. Most people usually just want to drop the money casino-style and see what happens; not exactly a sound investing strategy to get you to a financially secure place. If you want to have fun, have fun, just don’t confuse investing with gambling.
When the chance at living is too sweet to pass up. Last but not least, you already know that life is short and that, to look back fondly on it, you need to go forth and take risks and pursue whatever you heart impels you to. What is right in the eyes of society may not sit well with you and the memories you’d like to accumulate. Does it make financial sense to drop five grand on a trip with the right person or to pursue your far-fetched dream of becoming a full-time poet? How about turning down a decent job in exchange for a day-to-day environment that will stretch your pockets thinner but will get you considerably closer to happy? Perhaps not because your portfolio will be worse off for it. That doesn’t matter at all, of course, so long as the experiences make it easier for you to accept and love yourself when you’re alone with your thoughts.
While we’ve learned about a few reasons why you shouldn’t invest, chances are it should still be a regular part of your life. You’re young, after all, and have the decades in front of you that you need for stocks to appreciate in value. When you’re ready to get started, you can give my short investing guide a read. It’ll run you through the investing process in plain language, step by step, so you can check this major part of adulthood off your list.