Under-investing is real, and it is quietly expensive in ways that only become visible much later, almost when it is harder to recover.
When we think about investing, we often ask ourselves, “Am I investing enough?” But it is a question most of us rarely go back to. You may be investing every month, setting aside money regularly, and even reviewing your portfolio from time to time. Yet, there is a possibility that you are still under-investing relative to your capacity and goals (two dimensional). The reason is quite simple. Rarely, investing enough is about a fixed amount, it is about whether your investments are keeping pace with your ambitions, income, and the life you want to build. Let us tackle this broader question, with a few sub-questions. The first one being, “Are my investments growing with the stage of life I am in?”
Is Your Investment Strategy Keeping Pace With Your Life?
One of the easiest ways to unknowingly under-invest is to let your investment amount remain unchanged while everything else moves forward. Your income may have grown, your responsibilities may have changed, your aspirations may have become bigger. Yet, the amount you invest may still be based on a decision made years ago. What was once an adequate investment may no longer be enough for the goals you are working towards. This is why investing should not be treated as a decision you make once and forget about. As your financial circumstances evolve, your investment strategy should evolve along with them
Now this brings us to another important argument of, as we grow monetarily life, a thought in all our minds is that, “maybe I am more comfortable holding more cash?” The reason being that cash gives us comfort- it feels safe, accessible, and predictable. Keeping enough aside for emergencies, and near-term needs is essential (emergency fund), but there is a difference between having adequate liquidity and keeping a significant portion of long-term wealth on the sidelines. Money meant for a future goal has a job to do. If it remains idle for too long, it may lose purchasing power and miss out on opportunity to compound. Under-investing, therefore, is not always about investing too little. Sometimes, it is about leaving too much of your long-term wealth unproductive.
Now while we are sitting on idle cash and investing the rest, the next important question is, “ Am I investing for my goals or just simply investing?”
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This is another very common trap in this regard. A portfolio can look well-diversified and still fail to serve your financial objectives. The right approach depends on what the money is meant for, when you will need it, and how much uncertainty you can comfortably accept along the way. For a long-term goal, being overly cautious can be just as counterproductive as taking excessive risk. The question is not simply “Where should I invest?” It is “What does my money need to accomplish, and is my portfolio giving it the right opportunity to do so?”
Sometimes, the simplest way to avoid under-investing is to periodically increase the amount you put to work as your financial capacity improves. It does not have to be a dramatic change. What matters is developing the habit of reviewing your investments as your circumstances change. A growing income should ideally be accompanied by growing investments. Otherwise, lifestyle expenses can gradually absorb additional financial capacity without leaving much more for future wealth creation. Another way to look at this would be that, maybe under-investing is not the only problem, it is also that your portfolio has not evolved with you. You may be holding investments that were appropriate several years ago, but no longer fit your objectives. You may have accumulated too much in certain assets, or you may be holding back from opportunities because of short-term market uncertainty.
If the questions we discussed in this blog makes you pause, it maybe time to look beyond whether you are investing regularly as ask whether you are investing adequately!
