If You Think Investment Education Is Expensive, Just Try Ignorance…
Do you know the difference between a balance sheet and an income statement? Do you know the necessary due diligence steps to take before putting capital at risk on a new investment? Or maybe you aren’t clear about the difference between investing and gambling and how it affects your profits.
Amazingly, the single biggest skill that can make or break your financial success is not taught in school. You can graduate with a four year degree and learn nothing about accounting. Doctors and attorneys can open their own practices without any clue how to read a financial statement. Business owners and investors can remain dangerously ignorant of the tax law.
The truth is financial literacy is the essential skill you must develop if your goal is to build wealth and enjoy financial security. There is no alternative. The best investment you can make is in yourself and your financial education. It is the obvious starting point to building wealth.
Why? Here are the seven reasons…
- Security: nobody can take it from you.
- Income: pays dividends for the rest of your life.
“Invest in yourself, in your education. There’s nothing better.”
- High return on investment.
- Improves the quality of your life and finances.
- Provides for a secure retirement.
- Helps you avoid losses through better investment decisions.
- Peace of mind: creates confidence and security around money.
That’s a long list of advantages, but what about the disadvantages? Why doesn’t everyone master these essential skills for investing and develop their financial literacy?
- Because it requires time and effort, and they are busy.
That’s it. There are no other disadvantages. If you are willing to commit the time you can have all the advantages that accrue to becoming financially literate. All you have to do is put out the effort and a lifetime of benefits is yours for the taking. It is one of those “duh-obvious” decisions that is easy to understand but hard to live.
After all, what do you prefer: a little bit of effort now in exchange for a lifetime of financial security, or a little bit of procrastination and avoidance now in exchange for a lifetime of financial mediocrity? Not a very difficult decision, but surprisingly few people make the wise choice.
Financial education is one of the great bargains in life: it costs little, risks nothing, and returns huge rewards. It is the best investment you can make. The sooner you get it the more it will be worth to you. The longer you wait, the more it will cost you.
Which path will you choose?
Below we will examine each of the seven reasons why financial education is your best investment so that you will hopefully make the right choice…
Most Investment Advice Is A Dangerous Half-Truth
Aren’t you tired of all the financial and investment experts with their conflicting investment advice?
- One expert says diversify to reduce risk, and another expert calls it di-worsefying that insures mediocre results.
- One expert says pay down all your debt because it is bad, and another says leverage up with good debt to build wealth.
- One expert says the stock market is the key to riches, and another expert tells you more millionaires come from real estate than any other source.
It’s enough to make you go bonkers! Who can you trust?
“If a man empties his purse into his head, no man can take it away from him. An investment in knowledge always pays the best interest.”
How is a person supposed to learn how to invest money when the supposed experts can’t even agree? Each authority speaks as if there is one and only one right answer, yet each financial expert offers differing and often conflicting investment advice? It makes no sense! It’s frustrating.
It drives me nuts when supposed financial experts speak in over-simplified, dogmatic statements as if they have the one right answer. True experts know that most financial truths are more subtle and complex so they don’t insult your intelligence with over-simplified, sound-bite investment advice. Even the most basic investment ideas such as buy and hold stocks for the long term are too complex to be adequately explained in a media sound-bite or brief article.
“An education isn’t how much you have committed to memory, or even how much you know. It’s being able to differentiate between what you do know and what you don’t.”
The reality is each item of conflicting investment advice above is partially true and partially false – depending on the situation. There are times when it makes sense to leverage up with good debt, and there are other situations where it can be equally correct to pay off existing debt. There are times when “buy and hold stocks for the long term” is a sound strategy, and there are other times when the risk isn’t justified by the reward. Each is a dangerous half-truth.
One reason financial education is necessary is to understand the subtle shades of gray hiding behind all the investment half-truths you hear. How else are you going to process this information into profitable investment decisions? You must know when a conditional-truth is applicable and when it should be disregarded because it can get you in financial trouble.
For example, do you understand when buy and hold is a smart investment strategy, and when the risk is not justified by the reward? Do you know when to leverage yourself with debt to grow wealth, and when it makes sense to pay off debt? What is the best wealth building vehicle – paper assets, business, or real estate – and why?
“If you don’t know who you really are, the stock market is an expensive place to find out.”
Adam Smith (George G.W. Goodman)
Questions like these can make or break your financial future. Learning the assumptions and reasons behind investment half-truths is one reason why financial education is necessary. It is the only way you can know who is right, who is wrong, and why in a world of conflicted and contradictory investment advice.
One Size Doesn’t Fit All Investors
Despite what all the investment experts selling seminars and courses want you to believe, there are no secrets to investing. To paraphrase John Bogle of Vanguard Investment fame, “The secret is there are no secrets”.
There are many different ways to invest profitably, and there are many sources where you can learn the information. There is nothing new under the sun, and no marketer has a corner on teaching any particular type of investment strategy. If you don’t want to pay a high priced guru thousands for his boot camp or seminar then you can probably find very similar information for less than a hundred dollars at your local library or online bookstore.
What you can’t get from a bookstore or most gurus is the real key to financial security: figuring out which of the many available investment strategies will work for your personal situation. Their investment advice is generic, but you need it personalized. Not all investment strategies are appropriate for all people, but there is one right solution for you. Your job is to find it so that you can achieve financial security.
“If you want to be truly successful invest in yourself to get the knowledge you need to find your unique factor. When you find it and focus on it and persevere your success will blossom.”
You are a unique individual with your own skills, background, experiences, and outlook on life. You have a risk tolerance unique to you and preferences, time frames, and goals that are different from everyone else.
What are the odds that a weekend investment seminar or week-long boot camp teaching one specific investment technique is going to be the right fit for your unique needs? It makes no sense. The hidden assumption behind most investor education is “one size fits all”. It doesn’t work with clothes, relationships, or sunglasses, and it certainly doesn’t work with investment strategy.
One size does not fit all. Each person has a unique gift to bring to the world and financial success results from an investment plan that capitalizes on that uniqueness. How you retire early and wealthy is going to be different from everyone else you talk to or associate with. That is why prepackaged advice, investment seminars, and generic computer solutions that spew static financial “truths” can never measure up to personalized education that helps you find your own truth.
Therefore, the second reason for the necessity of financial education is so that you can learn enough about yourself and the various investment strategies in existence so that you can develop a wealth building solution custom fitted to your unique skills, values, and resources.
If you don’t educate yourself to do it, nobody else will.
How To Overcome The Conflicts Of Interest In Investment Advice
The only person 100% committed to your pocketbook is you. Everyone else has a conflict of interest.
No less an authority than Alan Greenspan told Congress on February 5, 2002 that “for an increasingly complex financial system to function effectively, widespread dissemination of timely financial and other relevant information among educated market participants is essential if they are to make the type of informed judgments that promote their own well-being.”
“The difference between success and failure in the stock market is education.”
Bill Griffeth, CNBC Anchor
Greenspan also spoke about the need for Americans to better educate themselves about managing their finances and to promote greater financial education for children in the school system. He stated “financial literacy can help prevent younger people from making poor financial decisions that can take years to overcome.”
You must learn how to invest your money because no one will ever care about it as much as you do. Nobody else is making financial decisions in your life with zero conflict of interest except you. You are the only investment advisor for your portfolio that solely has your best interests at heart. Everyone else is in business to serve their best interests.
Avoiding conflicts of interest by being skilled enough to sort investment fact from fiction is the third reason why financial education is necessary.
You Can Delegate Authority, But You Can’t Delegate Responsibility
Many people want to believe their advisors will take care of the big financial issues like retirement, college savings, and wealth planning for them. Just delegate the issues to a professional advisor and don’t bother learning for yourself. They’ll take care of it. Nonsense!
Whether you hire financial experts or invest independently – you are still responsible for your investment results. Each choice is a decision you make; therefore, you are responsible.
You decide which investment expert to hire and you decide which investment to buy. If you don’t like your investment results there is no-one except you to blame. You can’t delegate the responsibility even if you delegate the authority.
“Education is a progressive discovery of our own ignorance.”
The only way to make consistently smart investment decisions is if you learn what works, what doesn’t, and why. If your investment decisions aren’t based on knowledge then what are they based on – salesman’s charisma, speaker’s charm, media sound-bites, trust, or blind faith? None of these are a reliable prescription for investor success. There is no substitute for knowledge.
It is incongruous to own self-responsibility in your mind for your financial future yet not take action by educating yourself on how to make smart investment decisions. Anything less is irresponsible.
Prioritizing your financial education is how you become self-responsible for your financial future. It is the fourth reason financial education is necessary.
Your Financial Intelligence Compounds Like Money
It is critically important that your financial intelligence grow at least as fast as your portfolio. Why? Because there is nothing more financially dangerous than a million dollars worth of investment decisions being made with a thousand dollars worth of financial intelligence.
Your financial intelligence acts as a ceiling that limits the growth of your wealth. As you raise your financial intelligence you raise the ceiling on what is financially possible for you. Your financial intelligence sets the context for your investment success – or lack thereof.
Your return on investment should improve as you learn how to invest more consistently and control losses when the inevitable mistakes occur. That translates into more dollars in your pocket and greater financial security.
“Invest three percent of your income in yourself (self-development) in order to guarantee your future.”
A little known fact about financial intelligence is it grows and compounds just like money. The effect is multiplicative – not additive. Each new tidbit of information connects to all the other knowledge which multiplies. It doesn’t just add up, but it grows geometrically by multiplying.
Your goal should be to make regular deposits every week into your financial intelligence account just like you make monthly deposits into your investment accounts. When you do this your financial intelligence will multiply and grow ahead of the growth in your investment accounts creating a lifetime of financial security.
Financial Intelligence Is The One Investment You Can Never Lose
Financial education is like an annuity. It is a one-time investment that pays dividends for the rest of your life.
People can steal your money, but nobody can ever take your financial education from you. Once you know it, you can never un-know it.
The sooner you seek investor education, the sooner you can begin reaping the rewards. The longer you enjoy financial literacy, the more value you will get from it because every year it will compound profits in your portfolio.
True Freedom and Independence Requires Financial Intelligence
Needing others to make financial decisions for you is dependence. Regardless of the amount of money you have, you will never be financially independent or secure as long as you depend on someone else to manage your money. You are dependent on someone else’s experience and knowledge for your financial well-being.
“The advantage of a classical education is that it enables you to despise the wealth that it prevents you from achieving.”
The world is littered with people who built vast fortunes and lost it all because of their own financial ignorance. Lacking financial intelligence is the opposite of financial security – no matter how much money you have.
Choosing the path of financial intelligence, where you learn to make decisions independent of other people’s advice, leads to investment wisdom. This allows you to independently sort all the divergent opinions with confidence and decide what is uniquely true for you and your portfolio. The alternative is to remain permanently dependent on all the conflicting and confusing opinions offered up as expertise by others and play a guessing game as to what is true for you.
Financial education teaches you how to fish so that you never have to be dependent on another person to give you a fish again. Financial education teaches financial independence.
Financial Education Is Your Best Investment
So what should you do now? The answer is simple. Commit to growing your financial literacy with a process of continual improvement by beginning to learn today. Rome wasn’t built in a day and neither is financial intelligence. You have to start somewhere – wherever you are right now – and fortunately success is a learn-able skill. If you work on yourself and study regularly the reward for persistence can be financial freedom.
There will never be a better time than now to learn and prepare so that all these benefits can be yours…
- Financial education will teach you how to sort all the conflicting investment advice so that you know how to manage your way through a world filled with investment half-truths.
- Financial education will help you build a wealth plan custom fitted to your individual needs.
- Financial education will help you negotiate the conflicts of interest inherent in investment advice.
- Financial education is how you demonstrate self-responsibility for your financial security.
- Financial education is how you raise the ceiling on your financial future by raising your financial intelligence.
- Financial education is like an annuity – it pays dividends for the rest of your life, and nobody can ever take it from you.
- Financial education is the foundation on which true financial independence stands.
Financial education is a long term approach to wealth that builds success on several levels by growing your knowledge, experience, and portfolio simultaneously so that you can retire early and wealthy with security and peace of mind.
Financial education is your best investment, and the only thing keeping you from enjoying all the benefits of smarter investing is… you.
If you aren’t clear on the tangible dollars and cents value of financial education in your life then here is a quick and fun exercise to prove it to yourself. Go to this free retirement calculator and input your financial information as best you know it today and print out the results. Don’t worry about accuracy: just do the best you can. Then increase your savings rate and investment return by 20% (i.e. from 10% to 12% investment return or from $400 saved per month to $480) and notice the dramatic change in results when compounded over your expected lifetime. That is an example of the potential cash value of financial literacy. It is literally worth a fortune. It can mean the difference between financial security and flipping burgers in your old age.
“Perhaps the most valuable result of all education is the ability to make yourself do the thing you have to do, when it ought to be done, whether you like it or not; it is the first lesson that ought to be learned; and however early a man’s training begins, it is probably the last lesson that he learns thoroughly.”
Thomas H. Huxley
So what are you going to do about it? What actions are you going to take today?
If you aren’t motivated to make a change then all I can say is I walked the talk and it literally made me a fortune. I’m a big believer in financial education because I know the difference it made in my life. I hope you will join me and do the same.
Nobody said it better than Andy McIntyre in his famous quote; “If you think (financial) education is expensive, try ignorance.”