The biggest barrier to building wealth, from a financial psychologist

It’s officially the time of year when you get around to that thing you’ve been putting off. And for millions of Americans, that means coming to grips with their finances.

If you’ve been avoiding funding your 401(k) or opening a brokerage account, you’re not alone. Nearly half of U.S. adults — 48% — report owning no investable assets, according to a 2024 survey from Janus Henderson.

And for many, the reasoning behind the procrastination is simple: Investing is (seemingly) too complex.

It’s a pattern of thinking that, if not overcome, could cripple many young people financially, says Amos Nadler, founder of Prof of Wall Street and a Ph.D. in behavioral finance and neuroeconomics.

“It’s a bias that we call ‘complexity aversion,'” he says. “And it’s the biggest barrier to building wealth for people who are not in markets or who have never invested before.”

Here’s how this cognitive bias could be costing you money.

On a very basic level, people who put off doing essential financial tasks have the same fears as those who can’t bring themselves to start an exercise routine — they don’t want to make a mistake or feel foolish.

Just as someone might say they don’t know the first thing about how all that fancy gym equipment works, a financially avoidant person might say, “‘Man, this is over my head,'” says Nadler. “‘I’m just not a numbers person.'”

Feeling this way about money is tied closely with another common cognitive bias known as risk aversion. Essentially, not only are you afraid you’ll screw up, but you fear that you’ll lose out on money you put time and effort into accumulating. And because fear of losing what you have can outweigh the joy of building wealth, you stay put.

The impulse is, “I’ve worked hard for it, and I’m risk averse. I’d rather just have the cash,” Nadler says. “I know inflation is eating away at my cash, but the market so volatile, so I’m scared.”

But the need to start investing — especially among young people — extends beyond the need for your money to keep up with inflation. By procrastinating on this particular financial project, you’re losing what many experts call your most valuable asset: time.

The longer you’re in the market, the more time your money has to grow at a compounding rate. For every year you delay getting started in the market, you potentially shave thousands of dollars off your future net worth.

Play around with an online compounding interest calculator, and you’ll likely discover that sitting on the sidelines for even a few years can have a massive effect on your long-term gains.

Consider a 20-year-old who invests $200 a month into a retirement portfolio that earns an annualized total return of 8%. By the time she’s ready to retire at age 67, she’ll have $1.25 million saved. If she starts at age 25, with all other conditions the same, her total drops to about $830,000. And if she puts things off until age 30, she’d retire with $547,000.

So, how do you get started? You could always open a brokerage account or self-fund a retirement account, such as an IRA. Doing so requires just a few easy steps.

But if your employer offers a workplace retirement account, such as a 401(k), opting in may be an even easier way to get started. Designate a percentage of your salary to contribute to the account out of each paycheck and select one or more mutual funds for your portfolio.

These plans commonly hold low-cost, highly diversified options, such as index and target-date funds, which give investors exposure to large swaths of the market.

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