If You Think Investment Education Is Expensive, Just Try Ignorance
- Reveals the only way to make consistently smart investment decisions.
- Shows you how to build a wealth plan custom fitted to your unique values, skills, and resources.
- Discover why you can never pay an advisor enough to put your interests before his own… and what to do about it.
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?
Do you know 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 isn't taught in school. You can graduate with a four year degree and learn nothing about personal finance or investing.
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's no alternative.
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The best investment you can make is in yourself and your financial education. It's the obvious starting point to building wealth.
Why? Here are seven reasons:
- Provides dividends for life that nobody can ever take from you.
- Increases your earning potential.
- Increases your return on investment.
- Improves the quality of your life and finances.
- Secures your retirement.
- Defends your portfolio from unnecessary losses.
- Provides peace of mind 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're too busy.
That’s it. There are no other disadvantages.
If you're 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.
“Invest in yourself, in your education. There's nothing better.” – Sylvia Porter
It's one of those “duh-obvious” decisions that's 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's the best investment you can make.
The sooner you get it, the more it'll be worth to you. The longer you wait, the more it'll cost you. Which path will you choose?
Below, we'll examine each of the seven reasons why financial education is your best investment so that you make the profitable choice.
1. 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 ensures mediocre results.
- One expert says pay down all your debt because it's 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.
How is a person supposed to learn how to invest money when the supposed experts can’t even agree? It's enough to make you go bonkers! Who can you trust?
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.
The reality is each item of conflicting investment advice above is partially true and partially false – depending on the situation.
Related: How Your Financial Advisor is Taking 75% of Your Retirement Income (or More!) Video, PDF download, or Audio.
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.
“Education is a progressive discovery of our own ignorance.”– Will Durant
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?
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's the only way you can know who is right, who is wrong, and why in a world of conflicted and contradictory investment advice.
2. One Size Doesn’t Fit All Investors
Despite what all the investment experts selling seminars and courses want you to believe, there aren't any 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's 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's one right solution for you.
Your job is to find it so that you can achieve financial security.
You're 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's.
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.
“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.” – Sidney Madwed
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's 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 to develop a wealth building solution custom fitted to your unique skills, values, and resources, as we cover in our systematic wealth building course.
If you don’t educate yourself to do it, nobody else will.
3. 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 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.”
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.
Related: How Your Financial Advisor is Taking 75% of Your Retirement Income (or More!) Video, PDF download, or Audio.
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.
4. 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.
Whether you hire financial experts or invest independently, you're still responsible for your investment results. Each choice is a decision you make; therefore, you're 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.
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.
“The difference between success and failure in the stock market is education.” – Bill Griffeth, CNBC Anchor
There's no substitute for knowledge.
It's 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's the fourth reason financial education is necessary.
5. Your Financial Intelligence Compounds Like Money
It's 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.
“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
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's 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.
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 to help create a lifetime of financial security.
6. Financial Intelligence Is the One Investment You Can Never Lose
Financial education is like an annuity. It's a one-time investment that pays dividends for the rest of your life.
People can steal your money, but no one 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.
Every year it compounds profits in your portfolio.
Why not start learning how to invest and manage your personal finances today?
7. 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'll never be financially independent or secure as long as you depend on someone else to manage your money.
You can't experience true freedom if you're dependent on someone else’s experience and knowledge for your financial well-being.
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's 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's 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 learnable 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. It 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's an example of the potential cash value of financial literacy. It's literally worth a fortune.
It can mean the difference between financial security and flipping burgers in your old age.
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'll join me and do the same.
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Boy did you hit the nail on the head! I am living proof. I wrote a book on those experiences “Save A Penny: A Financial Journey” which I describe all the challenges, bad advice and the value of educating yourself both financially and in the real world. Actually I just finished it and am selling it on Amazon. I had been writing it for off and on for over a year but when I found your book “How Much Money do I Need to Retire” and joined your blogs, I realized that my story might help others and finished it. I love your blog, website and the logic you give.
applepieapple Your comment is a little on the self-promotional side, but I’ll leave it anyway. Glad you enjoyed the article, and wishing you the best with your book!
Financialmentor applepieapple Sorry I did not mean to be promotional. I just wanted to verify your article.
Great Article Todd! This is all so true! A lot of the problem too with general financial advice based on personal experience is that it is also based on events that may be cyclical. For example, during the dot com era, there were several people who claimed to be gurus because they made a lot of money; but that’s also because EVERYONE was! It’s much more difficult to build wealth regardless of cycles (bull or bear) and to grow your financial wisdom over time because it also involves failing and learning from your mistakes, too (aka honesty).
kammitama5 Cyclical events and luck I agree. Remember the house flipping? It might have worked when everyone could get loans but when the crash came, they died for the most part.
Wow, Todd. Great lengthy but much needed to be written article. I’m sure all of your readers understands this information however, it never hurts to return to the basics. That being said, it is one thing to understand the importance of financial education, but it is another thing to apply that which you have learned.
Romeojeremiah Thanks for joining the conversation, Romeo! Great to hear from you. Hope we can get a run in together at FinCon in New Orleans.
I have been reading your posts and this article about the importance of financial education was a great reminder to how important such an education is. It would be really helpful if you could mention where to get started or what should be the foundations on which one should focus on to begin. Should it be your books that you have linked to or any other resources?
I have believed throughout my career that an educated consumer is the best shopper – and client. That applies double to me as I am a consumer myself.
I’ve been educating myself since age 5. No matter how well you educate yourself–stuff happens. Life happens. But if you are educated financially you CAN find a way out or a solution to your situations. Not all mistakes can be controlled but most can be managed if you are educated.
Good point, Donna. We can’t stop life from happening to us, but being educated means being more knowledgeable about the options we have.
Hey Todd, I totally agree.
I find it ridiculous that the only medium we are all guaranteed
to interact with (money) isn’t taught, or is barely taught, in schools.
Doctors, famous athletes and celebrities can make all the money
in the world, but a hard-working single mom with the discipline to invest can
beat them all in the end. Amazing.
Love the advice, keep it up!
Thanks so much for your article. Actualy i dont know where to start. I have realise i live a kind of random life. I get so money and responsibilties knock at my door from mother siblings and all, before you realize its all gone. Howevrr i believe its not an excuse. I believe and accept that am poor at financial education and investment in general. Please how and where do i start from.?
Your post information is very unique and useful for all readers.