Common Sense Investing: Is Investing Too Easy?

When I was a child, life hurt me. We didn’t have all the safety equipment, rules and regulations to keep us from scratching our knees. When we hurt ourselves doing something stupid, our parents would usually say, “Well, I hope you’ve learned your lesson. “I rode the bike once with bad brakes, and I knew it. I still have the scars from the resulting accident, but after that I took care of my bike. Pain is an undesirable, but effective teacher.

During the 1980s, society began to change. A new attitude emerged that children should be protected from pain. Youth sports events had no more winners, to avoid the pain of losing. Schools have stopped issuing “F’s” so that students don’t feel the pain of failure. I sometimes wonder if the younger generations are denied the opportunity to learn valuable lessons from their own mistakes. Societies’ obsession with injury prevention means that the lessons pain is meant to teach are often not learned.

Perhaps nowhere is pain a better teacher than in financial matters. I agree with many of the greatest investors in my life that their best lessons have been learned from their failures. When people make financial mistakes, the pain is real and the lessons can be invaluable. Yet policymakers seem a bit obsessed lately with trying to eliminate pain from our financial lives.

For example, the economy is currently suffering from a labor shortage, in part because people are not returning to available jobs because their unemployment benefits are so generous. Being unemployed should hurt. The goal of pain is to encourage all possible actions to find a job.

In 2007, a housing market collapse escalated when people who had easy access to credit bought homes they couldn’t afford. Borrowing money should hurt. The pain should be enough to encourage careful thought before going into debt. As we face a galloping real estate market today, much of the situation is caused by extremely low interest rates. Again, people often buy more homes than they should because borrowing doesn’t hurt enough.

The stock market is shaken every day by the daily trading habits of new investors. Buying and selling stocks has become too easy, using new free trading platforms (which are not really free). Trade should hurt. In my youth, high transaction costs made you think carefully before you act and made you buy for the long term. Now, regulators are looking to find ways to protect young traders from the financial losses that many see coming. Why? I ask. If they fail, let them do it. It would be one of the best investing lessons they could learn.

Everything in life comes with risk and sometimes feeling the pain of taking the wrong risk is the best way to avoid more disastrous mistakes in the future. Pain teaches us what not to do. Let’s not regulate so much that the younger generations are denied the freedom to learn the painful lessons that led to the success of so many of their parents.

Dan Wyson, CFP® is the author of “The Gold Egg” and “21 Financial Myths” and owner of Wyson Financial / Wealth Management 375 E. Riverside Dr. St. George, UT 84790 – 435-986-9525 – Securities and Advisory services offered by Commonwealth Financial Network, FINRA / SIPC member, a registered investment advisor.

About Janet Young

Check Also

Bitcoin’s laser-eyed king is blind to a $1 billion loss

Comment this story Comment MicroStrategy Inc. is two things: a publicly traded enterprise software company …

Leave a Reply

Your email address will not be published.