Investing Is Hard but That Can’t Stop You
The last 50 years or so has seen a consistent increase in the volume and quality of options available to retail investors. Back in the good old days, no one really knew that investing was a thing, even fewer knew that you could invest in what you wanted. This was largely due to a lack of information/awareness, high costs, poor technology, defined benefit pensions, and the investment landscape (including higher interest rates) at the time. Not many really invested – you save for a house (they cost about £54 at the time), work your way up the property ladder, and ride your cushy retirement out into the sunset.
This meant that there wasn’t really a huge emphasis on how to invest (from a retail perspective). It was something that was left to the “professionals”.
Now things are different.
Everyone is slowly starting to realise that they are an investor, whether they like it or not, a trend that has been accelerated by the pandemic/economic environment. All the barriers to entry have been torn down. Don’t know how to invest? Search the internet. Think it’s too expensive? Use a 0-commission broker. Don’t have much capital? You can start with £1.

As the retail investment landscape has evolved, so to has the advice distributed to retail investors (and investors in general). We have been told to invest in the “Nifty Fifty”, emerging market bonds, internet stocks, passive funds, derivatives, crypto currencies, and more. We should use fundamental analysis, growth analysis, technical analysis, modern portfolio theory, the CAPM model, factor models, smart beta, risk parity, algorithms, etc. All this gives most people a headache.
Whilst new ways of thinking about retail investing are constantly emerging, the old methods fail to die.
This is because it’s difficult to disprove an investment method. There are always seemingly-valid excuses as to why it didn’t work in a certain period/market. It’s actually very hard to make a case to exclude a certain way of investing but very easy to paint a pretty picture of why that method ‘should’ work.
This problem is particularly acute in retail, as it’s combined with the following other factors that exacerbate the problem:
- Timeline. Retail investing happens over long time horizons. Very few people stick to one strategy over long periods of time. People change accounts all the time. Other things happen in life. This makes it hard to see which strategy is better.
- It’s messy. One cannot conduct experiments in a laboratory. You can’t really force people to use different strategies and stick to them. People don’t track their returns. You can backtest, sure, but that’s not quite the same thing.
- Complexity. Even if you could run these experiments, the conclusions might not hold moving forward. Markets evolve and winning strategies often get arbitraged away.
- No data. We can’t experiment but we can look at past data, which can be helpful. The problem is that this data simply doesn’t exist. No one has studied retail investor behaviour at a granular level over a significant time period.
- Incentives. Why think about retail investing? You can only help yourself, really. Managing your own money in a low-time, low-cost, low-effort way doesn’t translate into managing other people’s money. The only thing you can do with this knowledge is flog some kind of course or book (or write an excellent blog).
- No one is working on it. This all means that not many people are working on this problem. No one is trying to solve retail investing. Those who are intelligent with an affinity for finance become traders. Those who like investing, rather than trading, manage other people’s money professionally. Personal finance gurus tend to skip the why of the investment section of their personal finance material. Not many have the aptitude for these areas but shun them to think about low-effort, low-cost, low-time retail investing instead (only weirdos do that).
This means that it’s very hard to know which retail strategy is best. It’s hard to know how exactly to invest your money.
In some ways it’s an intractable problem: you can’t really solve retail investing. This doesn’t mean that it’s not worth spending time thinking about. Although we will not be able to arrive at some formal definitive proof, we can still increase the probability that our solution is correct (or less likely to be disastrous).
We are dealing with opinion, not facts. But opinions can be well-informed.