If there’s a persistent thing that has annoyed me about working in financial services my whole career, it’s the somewhat pedantic attitude I see among folks in the industry. Time and again, I’ve heard a cocktail reception refrain to this effect: “Can you believe I still have to explain how XYZ works; don’t these people know how to read?”
On one hand, I get it. Merely by reading this column, you’re in a somewhat rarified circle of knowledge. But the reality is that, every single day, someone approaches investing, or ETFs, or even just basic financial concepts for the first time. And on a global level, society generally does a terrible job of educating people about how money works, much less ETFs.
With that in mind, here are four “dumb” objections from novice investors I get all the time that aren’t dumb at all when you think about it.
The market is just fictional—it’s 1’s and 0’s, rigged against the little guy
Ownership may be the bedrock of capitalism, but that doesn’t mean it’s obvious or intuitive. I always answer this question at the absolute most basic level I can: children’s small businesses. Once you break down the reality of opening a lemonade stand and sourcing capital, I find the idea of “fractional ownership” in a business clicks for people pretty quickly.
Why bother? It’s not like I’m rich
I get this one from younger people all the time. I generally start by ask them about their debt. Sure, a classic first step for novice investors is cleaning up high interest debt, but more to the point, I explain how the credit card company or student loan writer has actually made an investment in them. Capital One and Wells Fargo are, in essence, “investing” in all their debtors. They’re putting their capital to work in an income-producing asset (your credit card balances) with no guarantee of success (you might be a deadbeat). Put that way, I find most people become more eager not just to get out of debt, but to turn the tables on corporate America and start getting instead of giving.
The market’s too risky
This may actually be the hardest objection to counter with cold hard facts, since the market indeed involves risk. I tend to use restaurants as a counter-example. Opening a restaurant is a notoriously risky small business move, yet Subway franchises seem to prosper in every town in America. With its established brand, menu, customer base and business processes, Subway is inherently less risky than Aunt Flo’s Bagel Shop. From there, it’s a short jump to talk about the difference between, say, investing in Exxon versus a junior wildcatter. There is an investment portfolio appropriate for essentially anyone. Finding it is the challenge.
My Uncle Bob says …
Anecdotes are the enemy of analysis, my statistics professor used to say, and that’s profoundly true with investing. Uncle Bob lost his pension on Pets.com. Uncle Bob says I should just buy bitcoin. Uncle Bob has a financial advisor who only charges 2% and seems really nice. Uncle Bob says gold ETFs are a scam. Uncle Bob says to buy IPOs on opening day.
Let’s get one thing straight: Uncle Bob’s a moron. But the world is full of Uncle Bobs who get just a little bit of exposure and then assume they’re geniuses. And we also risk becoming Uncle Bobs ourselves, which is why I tend to respond to the Uncle Bob objection with a simple request: “Don’t believe me, and don’t believe Uncle Bob. Do the math, work the problem and form your own opinion.” Because 99% of finance and investing doesn’t involve math beyond what’s taught in middle school, as much as we might like to pretend otherwise.
ETFs are no different. Nothing about ETFs is so complex as to be unknowable for someone with even a hint of curiosity. So what do I do? I stay curious. I try and counter the objections with facts and links and books. I try to keep an open mind. But whatever I do, I try very hard not to just become another Uncle Bob.