The “conventional wisdom”—interestingly, that which is propagated by investment bankers, mutual fund companies, and the host of other commercial interests that try to sell financial products to us–constantly reassure us that the average American is capable of managing their own investments “just like the professionals”. They make it sound easy.
Not to be overly cynical, but don’t forget that Home Depot claims they can turn anyone into a part-time plumber or carpenter (“you can do it—we can help”). Our government claims everybody can and should maintain their own home, even referring to it as the “American Dream” and “your most important investment”, when the real facts are that a large proportion of the population is physically and financially unable to, nor is it always practical or a good investment. For many people, the American dream has become a nightmare.
In other words, “conventional wisdom” is tainted by the financial interests of the messengers. America is a consumer-driven society, and practices that in many societies are reserved for professionals—things such as home maintenance, vehicle maintenance, and even transportation—are necessarily considered do-it-yourself ventures in America, simply because our economy thrives on convincing the consumer to take it on by themselves. The concept of every John Doe being independent and self-reliant sells well in America, but some things are simply best left to the professionals.
Investing, in my opinion, is no different. The world of financial products available out there—from mutual funds to annuities to stocks to options to ETFs, etc.–is simply staggering these days. Yet the average American’s basic financial literacy—let alone comprehension of these sophisticated financial products—is at an extremely remedial level. Most Americans struggle to understand a balance sheet, income statement, or even credit card statement let alone all this other stuff.
It should therefore be no surprise to you that Merrill Lynch’s version of investing is all about buying their stock funds, while MetLife will tell you to avoid the stock funds and invest in life insurance. The 401(k) was sold to us as another opportunity to make our own choices.
But the joys of choice are vastly overrated. This isn’t about the smarts of the average American; it’s also about how much energy and time goes into keeping an eye on an investment portfolio. Just look at all the lists of “10 things to get right” or “stupidest mistakes” to avoid. (And the multimillion-dollar industry of books and workshops provided by those reassuring pundits and experts.) The average American is way too busy and out-of-touch with a complex and ever-changing investment environment for DIY retirement investing. This is not something you can do instead of texting while driving.
Even the most literate among us face obstacles. First, you have to spend quality time deliberating on the kind of questions that send otherwise sane adults into denial so deep that they don’t even create a will: How long will I live? How soon will my fellow breadwinner die? Once you’ve done all the math (another favorite activity), remember to always read the fine print, scrutinize claims and be proactively skeptical; there are plenty of deadly pitfalls.
The investment industry would have us believe it’s all very simple. But do-it-yourself is better when the stakes are lower: staining your deck, assembling a bookcase, or cooking a meal.
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