Happy April Fool’s Day. This holiday got me thinking about how Americans have been fooled into thinking they can’t handle their finances. It’s just not true and that’s one of the reasons I wrote Money Smart.
Over the last forty years, the large and lucrative financial industry has convinced the public that they need to hire someone to help with their personal finances. Financial service experts are trained in and excel at sales and marketing, asset gathering, and commission generation, but not much else. It’s a myth that consumers cannot handle their own finances. The truth is that with a little understanding of the basics of finance, pretty much everyone can manage their money and do it better than an ‘expert’ is likely to.
Let’s break down the Three Myths of Money Management:
Myth #1: Always Invest for the Long Term
The standard advice of the financial service industry is that the markets will always do well over the long run: therefore, so will your money. The truth is that all markets go through long periods of substantial over- and under-pricing, creating long periods of time when you are pretty much guaranteed to make money, and others when you are pretty much guaranteed to lose.
When the stock market is significantly over-priced, the sensible thing is to sell your holdings and invest in other markets like fixed-income or real estate. If this is pointed out to people in the industry, the universal response is that nobody can time the stock market. They’re right. Nobody can, but they can sure tell when a market is significantly overpriced, and ignoring that reality usually guarantees bad results.
Myth #2: Let Us Handle Your Finances Because We Do It Better Than You Can
American’s finances were hit hard over the last ten years. The “experts” in the financial services industry did not predict or protect their clients from the events that unfolded in the stock and real estate markets. On the contrary, their failure to understand and act on the market forces at play made things worse for their clientele.
Myth #3: Money Management is Very Complicated
Over and over again the public has been told that money is a very complex subject and that you must have a huge amount of information to succeed financially. Again this is just not true. There is no reason why you can’t understand the subject of personal finance and investing, all you have to do is invest very modest amount of time to learn the basics of finance.
Don’t be Fooled–Break away from these destructive financial myths. Embrace the idea that you can manage your own finances.