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We may teach schoolchildren economics, but rarely do we teach them finance. This situation is then compounded when, as adults, we are exposed to making extremely serious financial decisions without the necessary knowledge and education in order to try and get the best results. All too often financial investment is characterised in a similar manner to gambling. Thus in my view it is not surprising that we end up with similar results – losing money. Few bookies or casino owners seem to lose money – just the punters.
Thus we need to ensure that whatever area of investment we are involved in, from cash deposits through to far more complicated financial constructions, we have to understand not just what is trying to be achieved, but what risk and with what potential outcomes. With products like “precipice bonds” where the dangers weren’t usually appreciated until a certain set of circumstances arose, you would have to have been an expert in the product to appreciate its risks. However with others, such as the risk to capital or income, we should be asking the questions before parting with any funds. Fundamentally if the person asking you to invest cannot explain the product with all its risks and responsibilities in a way that you can understand, then it is not you that is at fault but rather them – and thus it should be avoided.
Equally, we need to spend more time learning and understanding what investment tools, techniques and facilities are available to try to educate ourselves accordingly. However, none of us are going to be experts in everything, and thus we must apply the discipline that if we do not fully understand the implications of such investment – then we don’t do it!
The other key part of this is the transparency and visibility of where our money is. After all, it is your money not theirs, and therefore you should demand to have visibility of what is going on in a manner that is suitable for you. Increasingly this is now on-line, although there are still some dinosaurs who profess that they don’t wish to put their clients’ investments on-line for them to see. I have even heard one such creature state that this would only encourage complaints!
Nowadays, your financial data can be fed through and the introduction of more tablet based “apps” means we will be able to see our investments in a manner which we wish to see them as opposed to how investment houses dictate you receive them.
I am still horrified by the massed piles of paper sent to clients in the name of good communication. This often merely acts to stifle knowledge by an overload of paper and with poorly presented data. This often includes benchmarks as set by the provider rather than by you, and key information such as performance and cost seem buried in amongst this plethora of paper.
I don’t think we can show investment as being entertaining, but we can at least make it interesting and engaging. Therefore, a golden rule is to be organised so as to be able to see clearly what we have and where, and in a manner which we can understand and interrogate.
Slowly but surely the providers are changing as competition forces them to become more client focused and less internally driven. However, it is up to us as investors to ensure that we are better financially educated to see, monitor and understand what is happening to our hard earned, saved and invested monies.