Are You a Stock Market Skeptic?

by RJ

in Investing

More and more, when I ask members of The Gen Y Wealth Newsletter what they want me to write about, a common response is, “I have little faith in the stock market going up for the next 40 years. What are alternate options besides investing in stock?”

Why the Lack of Faith?

As a financial planner, I cringe when I hear someone say they won’t put a small percentage of their savings in the stock market.

But on second thought, can you really blame someone in their 20’s for not wanting to invest? In less than 10 years, we’ve had two bubbles burst.

The first was the dot-com bubble in 2000. Most young adults didn’t invest in this bubble. That’s not to say that we didn’t have exposure into it. There’s a good chance our parents did, which means it’s likely there was pessimism towards saving and investing in our families growing up.

Our next negative exposure came recently. Right at the time members of Gen Y started to invest, the credit bubble hit.

More Information Doesn’t Matter

For those with a negative belief about the stock market, what if I told you that it’s a great time to buy for someone in their 20’s. Since you’re in the accumulation stage of investing, you want prices low. Would that make a difference? Would you invest in stocks, with that knowledge? Probably not.

I’ll try again. What if I told you that the last time investor’s were very fearful were the 1930’s and 1970’s. And that, investors who bought and held through these decades experienced very high returns the following 20 years. Would that make a difference? Would you invest in stocks now? Again, probably not.

One last time. What if I told you that there are ways to reduce your risks. You don’t, and shouldn’t, have your entire portfolio in stocks. You should have a portion of your portfolio in bonds. Bonds have historically moved in an opposite direction as stocks. Therefore, when stocks go down, at least your bond investments will rise. This protects you from large losses.  Not only that, but you can diversify your stock and bond investments for a very low cost with an index fund. Last, you can also rebalance yearly to again reduce risk and increase your return. Oh, and if this sounds like too much work, you can invest in a target retirement fund and professional fund managers will do all this work for you for a very small fee. Knowing this, would you begin investing? I’m guessing the answer is still no.

That’s because more information doesn’t matter. You’re not going to change a belief you’ve held since a young age based on just information. No matter what statistics about long-term investing I throw at you, your beliefs are strong.

What really is a Belief?

Stop thinking about the stock market and start to think about what a belief really is. Wikipedia defines a belief as, “The psychological state in which an individual holds a proposition or premise to be true.”

When we talk about our beliefs, they feel true to us. Although, our beliefs are not necessarily an accurate statement about reality.

For example, most of us grew up with the belief that mistakes are bad. It’s not hard to imagine why. When we made a mistake as kids, it was looked down upon by a parent, teacher, or coach.

Unfortunately, most of us take the belief that mistakes are bad into adulthood. Now instead of making mistakes, one becomes fearful.

My Beliefs about Money

In order to write this post, I had to dig into my past. I’ve always believed that the stock market was great, but why? Just like someone with negative belief about a investing, I had to form my positive belief.

Looking back, I can think of three reasons why I’m not afraid of putting my money into the stock market.

  1. In 8th grade, our entire class competed in a stock market simulation contest. I don’t think I won but I came in second or third out of a class of a few hundred. Inside of 60 days, my fake stock portfolio was up over 25%. This contest occurred in 1999. A time when you could invest in anything and make money.
  2. I worked at a country club starting around age 12 and through college. I was always around businessmen talking about investing.
  3. My Grandpa was a successful buy and hold investor.

Where did Your Beliefs come from?

No matter if you believe stocks are risky or safe, attempt to identify where your beliefs came from.

If you believe that “Investing is risky,” try to think of an event that led to that belief. Did you enter into a stock market simulation contest during a down year of the market in Middle School? Do you remember situations in which your parents complained about their investments? Did you grow up in a household that never saved and was always going from paycheck to paycheck?


A new trend in financial planning, is to not only sit down with a financial planner but a psychologist as well.

Often you know exactly what you want to do but can’t get yourself to take action. Most of the time, there is an underlying belief explaining this behavior.

The area of psychology is new to me but one that I find very interesting. If you did the exercise above, I would love to hear what you came up with in the comments.

There’s two more followup posts on psychology and behavior this week, so check back Wednesday and Friday to learn a little more.

If you want to know more about changing your beliefs now, two good books I’ve read lately are:

Photo by: Steve Rhodes

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{ 8 comments… read them below or add one }

John HunterNo Gravatar February 21, 2011 at 10:45 am

I am a believer that stocks are a great investment. Minimizing expenses for your investments is key. As is managing your ENTIRE PORTFOLIO. The biggest investing failing is not saving any money – so failing to invest. But once people actually save the next biggest issue I see is people confusing the investment risk of one investment in isolation from the investment risk of that investment within their portfolio. It is not less risky to have your entire retirement in treasury bills than to have a portfolio of stocks, bonds, international stocks, treasury bills, REIT… Yes, developing markets are volatile and will go up and down a lot. No, it is not risky to put 5% of your retirement account in such investments if you have 0% now. I think it is much riskier to not have any real developing market exposure (granted even just having an S&P 500 index fund you have some – because lots of those companies are going to make a great deal in developing markets over the next 20 years).


PatrickNo Gravatar February 21, 2011 at 11:03 am

I think that the current generation has to much exposure to technology and having instant gratification. Ten years ago there was no Facebook, iPhone, Netflix or Twitter which fundamental change the way we live our lives. In a world of Google where literally anything is just a mouse click away it is extremely difficult to convince someone to put money into an imaginary mechanism (stock market) and to wait ten, twenty or even thirty years.

I remember my dad talking about receiving his stocks in the mail, as in, when he called a broker they actually mailed him a piece of paper or multiple pieces of paper for the stock he just bought. Now it’s all just numbers on a screen, it is not real and therefore it no longer has a tangible asset value. This disconnect from reality is hurting the younger generation to feel like they actually own anything. When you entire life revolves around the computer and digital money you lose the feeling of working hard and having something that is yours.


KayNo Gravatar February 21, 2011 at 2:11 pm

Are You a Stock Market Skeptic?
No, me not.
Im my country if you dont buy in stock you have no money for food..
so how can i be Skeptic if this Markets save my life?


Pat S.No Gravatar February 21, 2011 at 2:57 pm

I’m a hopeless optimist. But I believe in investing based on facts and historical returns. I believe in compounding reinvested dividends and moderate growth long term income stocks, not quick returns and becoming rich overnight. But that’s just me.


RuNo Gravatar February 23, 2011 at 6:20 pm

My parents have always had a little bit of money invested in the stock market. I’m not sceptical, just a bit wary- I don’t understand how to get started with stocks, don’t think I have enough money to really make a difference, and want the little money I do have to be readily available in case of emergencies.

I can read the stocks 101 essay on Motley Fool a 101 times and I still don’t quite get it!


RDNo Gravatar February 24, 2011 at 3:59 pm

I’m a terrible skeptic. I enjoy swing trading, day trading, and the like, but I get burned EVERY time. I’ve had 100% profits in one day (small potatoes mind you, like $300), but I get so greedy that I wait for more, and boom, crash, I’m down 95%…. If I’m lucky I’ll rebound to a 50% loss.

I’m the younger Gen Y’er. We ARE about instant gratification. I can’t let my money sit there and accumulate wealth overtime… I want it now.

Contrary, on mock portfolio sites like, I’m up over 100% for the year for buying and holding (more like forgetting that I have an account). I don’t know why I can’t do it for real. I don’t understand my own disconnect. I should have invested real money into those… NFLX, AMZN, UAL, RSP…. maybe one day I’ll wrap my head around it.


The Prudent PlannerNo Gravatar February 25, 2011 at 8:44 am

I know some planners here locally that have had to take psychology seminars. It’s good CE and apparently it’s pretty common now b/c of the market. I’ve heard stories of customers coming in to talk and crying their heart out. It’s more about them and less about the money. One quote I liked in my last estate planning course, “They don’t care how much you know until they know how much you care”. That’s never been more true.


DanaNo Gravatar July 10, 2011 at 3:11 am

I was skeptic about stocks market since I do not know what stocks market really is. But, lately, I learn about the market psychologist and found that the stock market is an interesting place in where we can found the pure capitalist system — and fight the greed and fear. It is challenging yet fun.


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