Put simply, understanding finances can mean the difference between making sound and poor financial choices. Why does this matter now more than ever? Because we are presently experiencing a relatively positive business and economic climate. This may come as a surprise due to the ongoing global pandemic…
Everyone Seems Like a Financial Expert in a Growing Market
It’s important to fix problems when things are going well
John F. Kennedy
When everything is on the rise, it seems like everyone is a financial whiz. This has been the case for quite some time across various asset classes, especially over the past 18 months.
Last year saw the shortest bear market on record, suggesting that we’ve been in a bull market for an extended period.
What does this mean in practical terms?
It means that one could have heavily invested in a (meme) stock or a specific cryptocurrency (hint: it starts with a B… and it’s not Britcoin) and made significant gains. Hence, one might believe that they are making prudent financial decisions…
No offense, but truth be told, even a blindfolded monkey throwing darts would have achieved the same results.
However, this becomes problematic when someone forgets the fundamental principles of finance while feeling like they are Gordon Gekko.
Basic financial concepts such as portfolio diversification, risk-adjusted returns, and leverage tend to be disregarded.
When the Good Times End
You only find out who’s been exposed when the situation changes
Warren Buffet
What happens when the good times eventually come to an end?
Because, all things being equal, bull markets always reach a conclusion. The music stops eventually. This marks the onset of a significant financial crisis, where the value of speculative assets plummets as everyone rushes for safety, ultimately hitting a low point. This is a natural progression and not something to be overly fearful of.
Looking back, it’s easy to identify a number of crises that have occurred at regular intervals. An excellent article in the Economist explores the five financial crises that have shaped modern finance.
The Time to Start Financial Education is Now
There are no valid excuses for neglecting financial education. It’s perfectly fine to start from where you are. The key is to initiate the process.
Begin with the basics and gradually expand your knowledge over time. Delve into articles, blog posts, videos, or enroll in online courses.
Form your own opinions by gathering knowledge from reputable sources. Avoid succumbing to gurus and their enticing but dubious shortcuts or schemes. There are no quick fixes; it takes time to acquire the right knowledge. Additionally, there are no foolproof investment strategies.
Fintech companies and individuals in the industry also have a significant responsibility. Without pointing fingers, if financial products are knowingly promoted to people who do not comprehend them or if they are detrimental to their financial well-being, it’s a shameful practice!
