Becoming Smarter Investors
I recently reviewed an industry report about investors and their financial literacy. Let’s talk about it.Not well-informed – What the survey found was that small investors have a ‘weak grasp of elementary financial concepts’ and that this lack of knowledge makes us much more vulnerable to fraud. Not only that we may be open to be hurt, but that this lack of knowledge makes us less strong to advocate and understand great investments and make a sound financial future for ourselves.What we learned in school – Though there are some programs to teach financial literacy in schools most 17 year-olds are not listening when to discussions of life insurance and home mortgage. Learning general financial information helps me better investors and smarter consumers. Concepts to know – So what should we know? 1.) Interest rate and the wonder of compounding – How can my $10 a week turn into $100,000? It can grow more quickly when interest is earned. Compounding is the concept of additional interest added to the original principal and each period’s interest. Then more interest added to the principal and old interest. And so on and so on.2.) Inflation- How much did candy cost when you were a kid compared to that same candy’s cost today? That is the change in price of items because of inflation. Inflation effects prices. The goal is that retirement savings earn more than inflation so that you can buy candy in your golden years, and everything else you need to buy.3.) Diversification and risk- You shouldn’t be guessing what provides better diversification. You should understand what diversification means and how much risk you are willing to take. Unfortunately less than a third of those questioned for one survey knew the answers for the three concepts above.It’s your money. You work hard and owe it to yourself to know basic financial information so you can take your place as a responsible investor.Citations:http://online.wsj.com/article/SB10001424052970204707104578090822080920906.htmlMarion Syversen, MBANorumbegaFinancial207.862.2952Marion@NorumbegaFinancial.comCheck out our website that includes weekly streaming videosWWW.NorumbegaFinancial.com Disclosure:Only securities and advisory services offered through Wall Street Financial Group, Inc. Registered Investment Advisor. Member FINRA/SIPC. Wall Street Financial Group, Inc. and Norumbega Financial are separate entities, independently owned and operated.