Pi Attitude Zone: Material Status

Invest My Savings? What Could Go Wrong?

A word of advice?  When somebody seeks out an expert from the personal finance industry, and asks for help investing money, then somebody can look forward to making a handsome return. But it’s rather more likely to be the financial advisor than the small-time investor.  It’s easier to grow rich by looking after other people’s savings than it is by saving money yourself.

It’s a seductive idea, to put a little aside each month and get advice on betting on stocks and shares.  Pretty soon you’ll be sitting on a gold mine, no?

Unfortunately, below a certain threshold, it usually doesn’t work.  There is a truth that small-time savers never get told.  If you are earning at a modest level, it will be a struggle just covering your basic needs, and meaningful regular saving could well be beyond your reach.  People who believe in rainbows very rarely see the anticipated pot of gold.  Even at higher income levels, investing the price of a Venti latte every day will never make anyone wealthy, whatever the TV get-rich-quick gurus are telling you.

But oh, the seductive predictions they make, about the attractive returns on your outlay and how solid and risk-free the whole process will be. A book by Jack Schwager (Market Sense and Nonsense – How the Markets Really Work, and How They Don’t) pointed out that “faulty risk measurement is worse than no measurement, because it may give investors an unwarranted sense of security”.

And yet consumers of investment services seem to want advice so badly they turn a blind eye to its often dubious quality.  Short-term movements in stock markets are impossible to predict, yet large numbers of professional stock-pickers claim to do exactly that.  Why do people trust them?

First, well, because they’re ‘experts’, and their forecasts seem convincing.  We really want to believe.  Second, because of the vast amount of data to keep track of.  Lacking the time and the aptitude for combing through it all ourselves, we decide to rely on the professionals.

But perhaps the most telling insight is people’s deep-buried desire to avoid regret.  If a finance guru persuades you to sink your savings into a given investment, you can blame him if it all goes horribly wrong.  If you play your own personal hunches, however, you have only yourself to blame if your stake is wiped out.

Better if it’s someone else’s fault, apparently.

Zone: Material Status Country: Multiple Geographies Product – Financial