In this week’s article, we consider that we should know a thing or two about where our money is going.
The Industry Loves a Pushover
Wall Street wants to manage your money. They want to take a fee from your profits, a spread from your yields, or use your liquidity for their own investments. For fear of being too cynical, there are also genuine people in the industry. Some advisors want to transition their clients comfortably into retirement. But they want their cut just the same.
It’s this “don’t worry, trust us” mentality that should be questioned. Look at where the managers took some people’s money back in 2008. Multi-billion-dollar companies participated in fatal investment errors. On the other hand, there are legitimate reasons why investment advisors suggest their clients not worry about it. After all, they are supposed to relieve you of the stress of managing your money.
Nevertheless, you should have at least some iota of an idea of what you’re getting yourself into. You should be educated enough to have a clear picture of how your money is working for you. To avoid being made into a sucker, you must know better than to be one.
The only way to get there is through education and experience.
Get Smart
While the business of finance can be made infinitely complex, we can bring it back to the fundamentals. There are times, prices, yields, fees, and taxes. With a basic understanding of arithmetic and algebra, these can be understood.
Perhaps the most accessible investment vehicle is buying large-cap stock. It is simple to comprehend what buying 100 shares of Microsoft will entail. You find MSFT on your broker, check the price, and make the trade. Once you own it, you can decide when to sell it. Now you are the proud manager of a share of a company.
Of course, that is an idealistic image of how difficult investing will be. Executing trades takes some practice, but that is not the hard part of investing. The hard part is predicting when to get in and out of a stock. The hard part is managing your emotions. The hard part is refining your process and sticking to it.
As strenuous as some of these aspects can be, don’t be afraid to experience them. The waves of stress, fear, and excitement that come with the uncertainty of an unrealized investment can feel overwhelming, but they will mellow out into a more nuanced form of emotional reasoning. Getting deep into analysis can make you certain of all the puzzle pieces coming together, and then the whole thing once again looks like a mess.
Sometimes it can feel like you’re running in place, but you are getting better. You will notice that when you talk to novices, their innocent blunders are the same errors you made when starting. Now you know better.
That’s all you can do, really.
Did you make a dumb investment? Now you know better. Should you have sized up in a good trade? Now you know better. Gave into your emotions instead of your process? Now you know better.
To really hit it big with an investment, it takes some combination of skill, luck, and grace. Home runs don’t come to every investor. Your job is simply to keep trying, not to be the best.
Focus on being good enough.
You Are Not a Genius
As much as I love to encourage, we should remain subdued about the prospects for the individual investor.
The game of investing is one of the most competitive. There are myriad professionals, trillions of dollars, and uncountable machines set to the task of breeding money. To think that you are going to out-compete most of them is a foolhardy (yet necessary) trait of the personal money manager.
Fortunately, some people can manage your money. You can let them, but you should want to know what they charge for their services, what investment vehicles they want to get you into, and at least the basic math associated with beginner’s finance.
Whatever you learn that can make conversations about finance richer and more detailed, do that. Don’t be a pushover!
You can paper trade, educate yourself, and even dip your toes in the market with some small investments. Knowing what not to do with your money is more important than knowing what to do with it. Don’t speculate rashly or on meme stocks, at least not without the expectation of what you’re getting yourself into. Don’t let an advisor make an investment for you that you don’t understand yourself.
With time and patience, you can become opinionated. Not dogmatic, but thoughtful.
Be active in the age of passivity.