Why Most People Should Stop Thinking About Investing

Taxes, debt, and the boring rules that actually make you rich

Disclaimer: This post is for educational and academic discussion only. It does not constitute financial, legal, or tax advice, and it does not consider individual circumstances. Tax rules vary across countries and over time. The examples below are simplified to illustrate economic mechanisms, not to provide recommendations. Readers should adapt the logic to their own situation and jurisdiction, or consult a qualified professional.

A recurring question I get is: how should I invest my money? Buy crypto, defence stocks, bank stocks, ETFs, or go direct? Are bonds any good?

My short answer is simple. Unless you are really wealthy, there is no need to torture yourself. Most people do themselves far more harm by obsessing over asset selection than by getting the basics right.

Here is the blunt truth. No one can predict the future with precision. You can spend thousands of hours studying markets and maybe gain a small edge. Or you can spend almost no time, avoid stress, and in the long run be much wealthier and far less likely to become very poor very quickly.

The single most important lever for most households is taxes and their interaction with debt. Taxes are the main force shaping portfolios and financial decisions. They do so very differently across countries. The practical rules below are therefore general, but I use the UK tax system to illustrate. You must adapt the details to your own jurisdiction. The logic, however, is universal.

Pay liabilities before investing in anything

And pay them in the right order. If you have multiple debts, clear them as follows:

1. Credit cards and very high-interest consumer debt

2. Student loans or other medium-high interest debt

3. Mortgage and other low-rate secured debt

High-rate consumer borrowing destroys wealth faster than any market bet can create it. If you keep expensive liabilities while chasing higher returns in risky assets, the tax system and the asymmetry of gains and losses will leave you worse off. This is true even when the liability rate is relatively low, such as a mortgage. It is therefore even more true for credit cards and similar products.

A small worked example

Suppose you have a mortgage at 4 percent and face a 40 percent marginal tax rate. You decide to invest £200,000 in the market instead of paying down the mortgage.

Assume the risky investment pays either +15 percent or −5 percent, each with 50 percent probability.

After tax, the outcomes are:

• +15 percent gross becomes +9 percent net

• −5 percent gross remains −5 percent net

The expected after-tax return is therefore (9 − 5) / 2 = 2.0 percent.

Compare this with the certain mortgage cost of 4 percent. On average, you lose the spread. Add mortgage fees and other borrowing costs and the picture deteriorates further.

Important caveat: A realised capital loss is not completely wasted. In most tax systems, it can be carried forward and used to offset future capital gains. This improves the picture somewhat. The deal is therefore not as rotten as the simple arithmetic suggests. However, two points remain decisive. First, the benefit of the loss depends on having future taxable gains to offset. Second, the loss does not offset wage income. The downside is immediate and certain, while the tax benefit is delayed and conditional. Even accounting for loss offsetting, the expected after-tax return remains unattractive relative to a guaranteed 4 percent reduction in debt. The conclusion does not change. However, in a tax environment like this, it is generally efficient to realise losses and defer gains. The typical logic is to realise losses up to the amount of capital gains you have to realize in that tax year (for example, you had to sell a second house and face capital gain for that). But again, tax rules differ across countries. There are timing rules, wash-sale restrictions, and differences in how losses can be carried forward. The broader point is not to optimise loss harvesting aggressively. It is to notice, once again, that tax considerations dominate asset-selection considerations for most people.

Liquidity buffer

Keep an emergency buffer that covers shocks your monthly budget cannot absorb. If your buffer is too small and you face a cash emergency, you will be forced into bad decisions, such as taking an expensive loan. This is very costly. Liquidity planning is not optional. It is central to avoiding ruin.

Housing is not always an investment

Buying a home is not a guaranteed path to wealth. Transaction costs are large, and again taxes are not on your side. Consider a common and very costly sequence. Two people buy a house for £1,000,000 and pay £50,000 in taxes and transaction costs upfront. Then spend £50,000 on a new kitchen and improvements. Three years later they split up and sell, with £30,000 in real-estate agent fees. That is £130,000 gone already.

Add mortgage interest. At 4 percent, over three years, that is roughly another £120,000. You then sell the house for £1,000,000. You loved your new kitchen. The buyer rarely loves it as much and rarely pays you back for it. The buyer wants to make their own changes.

None of these losses offset wage income or capital gains elsewhere.

You have effectively lost £250,000. To recoup that after tax, you need close to £500,000 of gross income. That is one very costly and very common error. Also, with £250,000, you could easily have rented a similar property for many years.

These are the mistakes that ruin otherwise sensible people. They are predictable. They are not glamorous. Of course, it is much more exciting to talk about which crypto to buy and which neighbourhood is up and coming.

Borrowing versus selling

Now suppose you own house with little or no liability, and need cash for a large expense (an expensive car or an expensive wedding). In the UK, as in many countries, equity release (borrowing against the property) can be the best option. This is because you generally want to avoid realising capital gains. Borrowing allows you to access liquidity without triggering tax. The cash you receive is not taxable income. Borrowing is not free. You pay interest. But in many cases it is still preferable to selling an asset, paying capital gains tax, and then using the after-tax proceeds to fund consumption or investment.

Again, notice the theme. Taxes shape the decision.

Order of priorities, practically speaking

1. Clear high-cost liabilities first. Always an emergency. Compounding debt at 10% a year is a killer.

2. Use tax-advantaged accounts and wrappers for savings. Hold risky assets primarily inside those accounts. Keep costs low and diversification high. Broad, low-cost ETFs and index funds are the right default for most people. Also, the effect of tax sheltering compounds dramatically. Saving £20,000 per year can easily cumulate to £300,000 after a decade. A 10 percent return on that is £30,000 accrued tax free. That is a very big deal.

3. Reduce lower-cost liabilities while maintaining a sensible emergency buffer.

4. If you own assets and need cash, prefer borrowing against them to selling and crystallising gains, provided the borrowing terms are sensible.

Why obsessing over asset selection is usually wasted effort

The investors who make the biggest mistakes are not the cautious ones. They are those who overestimate their ability to time markets or pick winners while neglecting debt, taxes, and liquidity. The sensible route for most people is boring. It is disciplined. It is tax-aware. It is unglamorous.

If you want to get richer without stress, pay down bad debt, use tax-efficient wrappers, keep a buffer. If you insist on glamour, do so with money you can afford to lose without jeopardising your life.

Conclusion

Personal investing is boring by design. That is its virtue. Taxes and sensible debt management determine your financial fate far more than whether you chose defence stocks instead of a bank ETF.

Think in terms of order of operations, not cleverness. Get the boring things right. Everything else becomes optional.