Beginning to invest in the stock market is like the first day of recruit training; it is overwhelming and you likely don’t even know where to begin. And that is okay. The goal of starting isn’t to become a master immediately. It would be unrealistic to expect a new recruit to know all the skills necessary to run an emergency scene, or a first-year university student to teach a tenth-grade science class or scrub in an operating room. The goal for you, right now, as a beginner is just to start. Starting is the first step to achieving financial goals that could be greater than you can imagine right now (we’re talking hundreds of thousands or even millions of dollars). Why is starting so difficult? Why is changing a behaviour so challenging even though we know the end results are positively astounding? The answer is it is not your fault. You never stood a chance against biology. The status quo bias is an evolutionary trait that encourages our brain to remain in the current state because the current state is safe, recognizable, and gives us a feeling of security [1]. It is uncomfortable for our brain to venture out and seek risk and opportunity. It is not surprising those same traits are found in public service jobs with pensions that we discussed in the You Need to Take More Risk post. Psychologists Daniel Kahneman and Amos Tversky theorized loss aversion, the cognitive bias that makes losing money feel significantly more painful than gaining the same amount feels rewarding. [2] The Status Quo bias has risk aversion entrenched in the psyche. So, we have an evolutionary trait that is specifically designed to prevent us from taking risk and starting to invest. How do we move past this barrier?
Brains are mendable, and habits, even the firmly ingrained ones, are malleable. Brain plasticity refers to the ability of the organ to change its function. [3] Changing your behaviour and creating new habits means you are creating new neural pathways and creating new opportunities for learning and challenges. Basically, we are retraining our brain. This is a conscious decision. By actively choosing to break routine, change a habit you are changing your brain, for the better! Your brain will likely fight this. Why would you change? You’re comfortable in your role, happy with your job security, and most importantly, happy with your pension (even though it will take you 25-35+ years to earn it). It is this status quo behaviour trait that we must break free from the grips of our engrained neural pathways and be bold. This is starting. And you just need to start. That’s it. That is step one in breaking the status quo cycle.
What if you feel like you don’t have the means to start investing? This would be a fair critique in years past where access to the stock market was closed from gatekeepers via high fees and limited access. However, in today’s world we have access to products that let us invest with very little money via zero fee trading and fractional shares purchasing (don’t be intimidated by those terms, they will be explained in subsequent posts). Essentially, you can start investing with as little as one dollar. The most difficult part is just starting. With the ease of investing, it is becoming more of a psychological challenge rather than a fiscal one. The best thing you can do to overcome the challenge is just to start. So, I challenge you to open a brokerage account (either from a bank or from an online retailer like Questrade or Wealthsimple) and that’s it. That is your only homework (for now). We don’t need to buy anything yet. Just be happy you started and that you are on your way. Before we get into any investing specifics, we will discuss another important psychological barrier to overcome which derails a lot of people, consistency.
[1] Fleming SM, Thomas CL, Dolan RJ. Overcoming status quo bias in the human brain. Proc Natl Acad Sci U S A. 2010 Mar 30;107(13):6005-9. doi: 10.1073/pnas.0910380107. Epub 2010 Mar 15. PMID: 20231462; PMCID: PMC2851882.
[2] Shefrin, H., & Statman, M. (2003). The contributions of Daniel Kahneman and Amos Tversky. The Journal of Behavioral Finance, 4(2), 54-58.
[3] Kolb, B., & Whishaw, I. Q. (1998). Brain plasticity and behavior. Annual review of psychology, 49(1), 43-64.
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