By Dan Greenshields
Out of curiosity, I recently typed “individual retirement account” into Google and hit search. Clicking through the first page of links, it immediately became apparent why so many Americans see investing as complicated and confusing.
As my search results described it, as long as I had “taxable earned compensation” — what most Main Street Americans would call “income”– I’d have to choose between four types of IRAs: Roth, SIMPLE, SEP, or traditional.
Of course, there wasn’t much to explain what distinguishes one from another. But once you’ve figured that out for yourself somehow, you can move on to note that an IRA holder’s “required minimum distribution” at age 70 is determined by “dividing their account balance by the appropriate distribution period” in accordance with the “rules [that] include updated life expectancy figures that reflect projected mortality improvement.”
Got that?!? Yeah, me neither and I do this for a living.
One site I visited made vague boasts about employing “sophisticated investment strategies.” Another insisted I roll my IRA and 401k funds into silver coins.
This barrage of jargon, marketing tricks, and purposefully opaque prose is just the tip of the iceberg. Much of the financial community is bent on convincing average Americans that investing is just too darn complex for them to tackle on their own — and that they’d be better off handing over hefty fees to “professionals” to manage their money.
That’s nonsense. There are simple, low-cost investment tools out there proven to help Main Street investors keep their financial future on the right track. But the confusion campaign from Wall Street has worked like a charm. A new survey from my company, ING DIRECT Investing, shows exactly how bad the situation has become.
More than four out of ten investors (44 percent) described the investment research available to them as “complicated,” “confusing,” or “overwhelming.” Almost seven in ten said that too much investment information can be as big a problem as having too little information. And 63 percent agree that the media contributes to making investing more complicated than it needs to be.
Take a glance at any of the major financial news channels and it’s easy to understand why. Dense charts and exotic numbers fly across the screen so fast you can’t possibly understand what they mean. Pundits pontificate on every tick and blip in the stock market. And hours upon hours of programming are devoted to convincing viewers that the day’s big news — no matter how inconsequential in the long run – may demand a radical readjustment of their portfolio.
Who wouldn’t be intimidated and confused by all that?
Fortunately, there are some easy ways to avoid investment information overload.
First, know what you want and don’t invest emotionally. Keep your eyes on your big goal — whether it’s saving up for retirement, a kid’s college tuition, or a new house.
Second, maintain the right perspective: Think long-term. Getting caught up in the day’s news of some stock taking a “pounding” on a “disappointing quarterly earnings report” will only lead to anxiety and bad decisions. Don’t overdose on the mobile apps, cable shows, and websites that bombard users with “vital” financial information every second of every day.
Third, find a financial services provider that is dedicated to clarity and transparency. An easy way to identify one is to look at the homepage of its website — is it cluttered by links or jargon-filled sales pitches? If so, that company probably isn’t right for you. Look for account options without balance minimums and with low commissions. You want someone concerned with helping you invest, not relieving you of your money.
Finally, automate your investments. Online brokers are particularly likely to offer automatic deduction plans that redirect a preset amount of your paycheck toward an IRA, 401k, or other investment vehicle. Sign up for these programs. After that first deposit or two, you won’t even notice the portion of your paycheck set aside for investing in your future.
Many Americans think investing is too complicated. But with these few simple steps, anybody can cut through the clutter and maybe generate healthy returns along the way.
Dan Greenshields, CFA, is President and Chief Investment Officer of ING DIRECT Investing.
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