Though I view
with suspicion any attempt to add more “required learning” onto the curricula
of our schools, I tend to believe more training in personal finance is a good
thing. A semester course might serve
well, but incorporating finance into other subjects would also serve the
purpose. For instance, instead of the
standard “if two trains left the station ten minutes apart” math problem, how
about a word problem that deals with comparing the interest rates at two
different banks with two different types of accounts with different terms? And in senior Economics class, why not work
in some material on how macro-economic trends (prime rate, money supply, etc.)
affect personal finances?
But financial
education can go off the rails, too. I’ve
read too many stories of personal finance classes that amount to a contest to
see who ends up with the most money in a stock market investment
simulation. Students are given a certain
amount of pretend money that they pretend to invest in real stocks and bonds,
and through actively trading in these assets try to beat their peers.
I’m sure the
students enjoy the competitive nature of a class that follows that format. But while that might whet their appetite for
investing, it can both fuel greed and diminish what I believe is one of the
most important virtues of investing: Patience
I’ve beat that
drum before in this blog. We should not
let the near-daily fluctuations of the market and the headline-grabbing scare
stories (or unrealistically optimistic ones) about what the stock market is supposedly
going to do drive our financial decision-making. Slow, steady, and patient is the mantra.
This was driven
home for me even more dramatically in a recent article by Eventide Asset
Management, sent to me by Faith Fi. It
cited a story in the Wall Street Journal from December 31, 2009, that praised
that decade’s best-performing U.S. diversified stock mutual fund, the CGM Focus
Fund 2. The fund had returned a
remarkable 18% average annually over those ten years. But astoundingly, the average investor in
that fund actually lost 11% over that time period—all because they went in and
out of the fund. It went down in value,
they sold their shares. The fund went
back up, they bought back. In effect,
they were selling low, after the fund had lost value (and thus turned a loss on
paper into an actual loss) and buying back when the price had gone back up
(buying high). Missing out on just a few
of the biggest single-day gains over a year’s time (or several years’ time) is
enough to tank one’s net returns. Buy
and hold. Find a few good mutual funds
or electronic traded funds (ETF’s), invest in them regularly, and hold on to
them long-term. A bunch of singles and some
smart base-running will get you home as surely (or more so) as swinging for the
fences.
Until next
time,
Roger
“A
man’s wisdom yields patience.” Proverbs 19:11 NIV*
*Scripture
quotations taken from the Holy Bible, New International Version® NIV® Copyright
© 1973, 1978, 1984, 2011 by Biblica, Inc.™ Used by permission. All rights reserved worldwide.
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