MyPrivateBanking Blog
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Posts Tagged ‘finance education’

Is Financial Education Bad for Private Investors?

Wednesday, June 8th, 2011

A recent article on MarketWatch claims that

“financial education, for some consumers, appears to increase confidence without improving ability, leading to worse decisions.”

The report goes on that it appears that investors need professional help because,

“… there are the expert skills, skills that are good to have but best left in the hands of a professional. With driver education, it’s changing brake pads; with money it’s asset allocation, risk management and security selection”

Great advice - give your wealth to a professional and join the 80% or so of actively managed portfolios that are underperforming their market benchmarks. There may be a lot wrong with personal finance education. One major reason probably being that its mostly in the hands of self-styled “experts” who are not aiming for education but who are trying to sell one or the other investment product using personal finance books and education as marketing tools.But true financial education for private investors should not be complex, difficult or confusing, and it should be definitely not done by those who have a clear conflict of interest.  It should be simple, straight-forward and independent from banks or other financial players who are following their own special interests.

Running your own portfolio is not difficult. In fact, it is quite simple - at least compared to the skills you need to drive a car: Have clear objectives, understand your risk profile and invest in simple, index-based products. But there are only very few professionals who want to teach this gospel. Probably, because the professionals won’t make a lot of money based on these simple but effective strategies.