I'm looking to research the arguments against investing, or at least arguments that present a rather different view of investing than is the conventional wisdom. By "investing", I mean putting money at risk of significant or even total loss--other than inflationary loss--by buying non-guaranteed assets. I'm particularly thinking in terms of stocks, but to some degree in bonds, metals, land, etc.

The conventional wisdom seems to be something (very roughly!) like this:

  • Investing is motivated by making one's money work for one's future self.
  • Owning stocks and bonds is, generally, the best way to do this.
  • This is because, historically, the stock market and bonds have returned x% ROI, where x > other vehicles' ROI. x seems to be quoted as something between 4-10%.
  • Each person's "needs" and "situation" are different, and so there are different rules for how to do this for each person. E.g. older people should be less risky.
  • An IRA invested in various mutual funds is a particularly good and convenient way to invest for most people.
  • There are ways to invest that modify one's risk or chance of gain, such as diversifying, Modern Portfolio Theory, dollar cost averaging, etc, and by adopting these strategies one can be confident that one is likely to do better than one who does not adopt them.

What I'm looking for are substantiated/evidence-based, well-reasoned counterpoints to this conventional wisdom.

Note: I am not asking the SE.PF&M readers to give their opinions about this--that would not a good question here. Instead, I am asking to point me to quality sources for these sorts of arguments.

For example, the historical evidence of past market performance could be questioned in a scholarly article that looks at other historical trends that, though they lasted 200+ years, ultimately came to an end. Or it could have a technological spin, suggesting that as markets "heat up" in terms of transactions-per-second, instabilities begin to form that didn't apply in, say, 1985. Or, it could be a legal analysis, showing how deregulation of yadda yadda has now caused blah blah blah. Or, an economic analysis. Or a sociological, discussing U.S. population trends. Or even something arcane, like game theory or chaos theory.

EDIT: Might the idea of the Taleb Distribution, inspired by ideas from Nassim Taleb in his book Fooled By Randomness be one specific example I could include along these lines?

EDIT: I'm asking this because I think it is both intellectually interesting as well as practically important, and because I tend to feel that pro-investing rhetoric seems to operate in an echo chamber in which disconfirming evidence is filtered out. Of course, I may be wrong about this and therefore if everyone on this site responds that there are no such (credible) arguments--beyond those inspired by Taleb's writings, if that is such as I think--then that is an answer in itself.

FINAL EDIT: I think this question answering process just went off the rails, despite my trying to constrain it. Simply put, I wanted to know substantiated and published reasons why one would probably be better off, long-term finances-wise, saving money in CDs than investing in a stock portfolio. People triggered on the point about risk too much; sure, all life is risk, I get that, but perhaps my wording just led things down that path. I'm happy with forgetting about this question, since it seems SE.PF&M has a strong pro-stock market investing bias and so far has no representatives against this conventional wisdom.

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    You're asking for some speculative sources and conspiracy theory sites? I'm not sure its relevant to this site, or in any way constructive. Why don't you tell us instead why you're looking for this? Maybe then you'll get some more helpful pointers. – littleadv Feb 7 '12 at 19:56
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    @littleadv No, where did I say conspiracy theory sites? I was quite careful to describe that I wanted "substantiated/evidence-based, and well-reasoned" counterpoints, and provided a paragraph of possible examples as well as a specific example of a popular book written by an economist. That you suspect I want the guys with the tinfoil hats suggests a knee-jerk reaction of "if it isn't pro-investing, it's just plain crazy talk!". – Chelonian Feb 7 '12 at 20:06
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    There's always the Pete Townshend argument- that you hope you die before you get old. – DJClayworth Feb 7 '12 at 21:22
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    Voting to close. The comments are showing this as non-constructive. – gef05 Feb 8 '12 at 15:09
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    @poolie - the question may be interesting, but not constructive and not suitable for this site. Its a philosophical/argumentative question that opens a discussion, and here is not the place for such questions. – littleadv Feb 8 '12 at 23:20

I think you're confusing risk analysis (that is what you quoted as "Taleb Distribution") with arguments against taking risks altogether.

You need to understand that not taking a risk - is by itself a risk. You can lose money by not investing it, because of the very same Taleb Distribution: an unpredictable catastrophic event.

Take an example of keeping cash in your house and not investing it anywhere. In the 1998 default of the Russian Federation, people lost money by not investing it. Why? Because had they invested the money - they would have the investments/properties, but since they only had cash - it became worthless overnight.

There's no argument for or against investing on its own. The arguments are always related to the investment goals and the risk analysis.

You're looking for something that doesn't exist.

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  • Just to be clear: I am aware of inflation risk. More generally, I agree with you and don't believe there is any 100% guaranteed safe storage of wealth, since wealth is really just a social convention and those can collapse. That said, my question is seeking arguments against the conventional wisdom of investing. Don't let the Taleb stuff be weighted much in this; I perhaps shouldn't have thrown that out but was trying to be helpful in promoting answers. – Chelonian Feb 8 '12 at 2:14
  • @Chelonian I haven't mentioned the inflation anywhere in my answer. As I said - you're looking for something that doesn't exist. There are no arguments, neither in favor nor against "investing" as a purely abstract thing. All the arguments you'll find will relate to some goals and some risks. – littleadv Feb 8 '12 at 2:39
  • The inflation point was from the link, not your words, right. Thanks for the input, I'll see if there are other answers. – Chelonian Feb 8 '12 at 4:02
  • This is the correct answer. Consider what the question said: "putting money at risk of significant or even total loss ... by buying non-guaranteed assets" A guarantee implies that some third party or property of nature will preserve your asset's value. If you are performing risk analysis, a "guarantee" is a low-probability, high-impact risk. – duffbeer703 Feb 8 '12 at 23:15
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    @Chelonian yes, you're looking for a round cube. – littleadv Feb 10 '12 at 18:51

Oh, geez, well-regarded arguments against investing, hmm? Well, I have a couple. They're not against investing per se. They're asking about your priorities and whether you might have something better to do than investing:

And he spake a parable unto them, saying, The ground of a certain rich man brought forth plentifully: and he thought within himself, saying, What shall I do, because I have no room where to bestow my fruits? And he said, This will I do: I will pull down my barns, and build greater; and there will I bestow all my fruits and my goods. And I will say to my soul, Soul, thou hast much goods laid up for many years; take thine ease, eat, drink, and be merry.

But God said unto him, Thou fool, this night thy soul shall be required of thee: then whose shall those things be, which thou hast provided? So is he that layeth up treasure for himself, and is not rich toward God.

— Luke 12:16-21

Christian or otherwise, there may be better things for you to do with your excess cash — indeed, with your life — than simply invest it to bring yourself more money. Many people find charitable contributions more important than spending a little more money on themselves (immediately or in the future). Of course, you will need to decide what these things are that matter to you. Perhaps you would like to contribute to traditional charities. Perhaps you would like to fund education, or a religious organization, or the Democratic Party, or the Republican Party, or the Libertarian Party, or the Green Party, or the Tea Party, or Occupy Wall Street. Perhaps you'd like to fund research into something. Perhaps you simply have friends and family that you want to make happy. Perhaps a small vacation to spend time with family is worth more to you now than the investment returns will be worth later.

Moreover, note that economic decisions like this are made on the margin — it's not so much a question of whether you invest at all, but whether you should invest more or less, and spend/donate more or less.

I made me great works; I builded me houses; I planted me vineyards: I made me gardens and orchards, and I planted trees in them of all kind of fruits: I made me pools of water, to water therewith the wood that bringeth forth trees: I got me servants and maidens, and had servants born in my house; also I had great possessions of great and small cattle above all that were in Jerusalem before me: I gathered me also silver and gold, and the peculiar treasure of kings and of the provinces: I got me men singers and women singers, and the delights of the sons of men, as musical instruments, and that of all sorts.

So I was great, and increased more than all that were before me in Jerusalem: also my wisdom remained with me. And whatsoever mine eyes desired I kept not from them, I withheld not my heart from any joy; for my heart rejoiced in all my labor: and this was my portion of all my labor. Then I looked on all the works that my hands had wrought, and on the labor that I had labored to do: and, behold, all was vanity and vexation of spirit, and there was no profit under the sun.

— Ecclesiastes 2:4-11

Because in the long run, we're all dead.

Anywho! It's all a matter of returns and risk analysis. Even spending on yourself and charitable giving can be thought in these terms (the returns are not 'more money', so they may be harder to analyze, but they're important too).

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    Hmm, I think the point of Luke 12 is not that investing is bad, but that it's naïve to suppose that you control the universe. Confer Matthew 25:14-29, where the men who invest are praised but the one who fails to invest is condemned. But yes, I'd certainly agree with what I think is your general point, that maximizing your personal wealth is not the best or only worthwhile thing in life. C.S. Lewis once said that if there are not things that you would like to do but you just can't afford because of your charitable giving, than you are not giving enough. – Jay Sep 23 '15 at 15:30

There are two interpretations of your question.

Every dollar you earn must be either invested or spent. That is, you keep the dollar in the form of a capital asset, one that you expect to return more than its cost over time, or a non-capital asset, like a beer a movie-ticket, or a shirt, that you will simply enjoy consuming or owning.

(Very few purchases, like a house and an education, can be regarded as both capital or non-capital, but ignore that for now.)

Obviously, no one argues that you should never spend and always invest (you'd starve in a week), or always spend and never invest (you'd starve in the first downturn in your income).

There are those that argue that investment has been over-emphasized. The most famous proponent of this theory was John Maynard Keynes, who discusses the so-called Paradox of Thrift in his work The General Theory of Employment, Interest and Money. People who believe this will generally argue for moving income from investment-preferring classes to spending-preferring classes via such strategies as progressive taxation and the minimum wage.

But your edits suggest that you are interested not in investment vs. spending, but in high-risk investing (like stocks and commodities) vs. low-risk investing (like CDs, savings account, and cash).

But make no mistakes, every investment has risk: gold can be stolen, government bonds can be defaulted on. Something can always go wrong.

Every person has some appetite for risk. One person might keep all his money under his mattress, while his twin brother is buying into tech startups.

Your question seems to be, is there an argument that people systematically take on more risk than they should?

Yes, some people:

  • someone who invests other peoples' money will often participate in the upside but not in the downside. "Money-managers" for example, might charge 2% of the principle but 20% of the return. This creates an agency problem, and they will choose riskier investments than their clients would have.
  • some people simply enjoy risk. A dollar won is far more pleasant than a dollar lost is unpleasant. This can manifest itself in gambling addiction (and investing is just a form of gambling with a positive expected return).

But just like the investing/spending decision, the low-risk/high-decision is a personal one, based on personal preferences and personal situations. It's difficult, and somewhat arrogant, to make an argument for the decisions made by billions of individual people being categorically wrong.

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