Financial illiteracy is the root of financial struggles. Investing itself is not where the main risk lies. The biggest risk when it comes to investing is when the investor does not know what he is doing. That is why it is crucial to invest in your financial education. Let’s pause and ponder for a moment. You really don’t know what you are doing. You don’t know how it works. You have no experience, and you have not consulted someone you know who has succeeded in doing what you intend to do.
What is your probability of succeeding? Worse than 50 – 50. You are taking a chance, gambling if truth be told. The rewards seem attractive, and the broker urges you on, so blindly you go in hoping and praying, and when the deal turns sour, you conclude the investment is risky, or it is not a good investment. Where is the risk? The investment itself or the investor who is clueless?
Most people’s opinion about a particular investment is based on their previous experience with that particular investment vehicle. If you have had a bad experience, you decide – never again. Few people care to carry out a postmortem to find out what went wrong and how to prevent a recurrence. As far as they are concerned there is nothing wrong with what they did. The fault lies with the investment itself.
Many folks got slaughtered in the last stock market crash, good folks who have no business going in there in the first instance. They hear a party is going on, the bulls are on a rampage, the index is rising and fortunes are being made virtually overnight. Like the gold rush, rookie traders (thinking they are investors) make a grand entry at the peak and watch in bewilderment as the bulls go out the window, index nosedives as the market corrects itself. Many had their portfolio halved in value as panic set in and shares got dumped in droves.
Investors enter when the market is down and exit at the peak. Traders come in, encouraged by rising prices, and ride the wave toward the bottom, hoping they can recover their investment. In effect, they buy high and sell low. They enter based on greed and exit out of fear. Spending time to really know what you are doing pays off handsomely in the long run. ‘Invest in your financial education is the best advice you can give yourself
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