Busting The Financial Myth – Diversify and Invest For the Long Term

As many of you might have heard today, diversification and investing for the long term has been regarded as the way to get rich. This piece of advice has been circulated for very long. However, I deem this to be a financial fairy tale. Now, I will bust this myth because I do not think that it can make you rich.

To start, I believe that investing for the long term is flawed because words have different meanings to different investors. For the amateur investor, long term can mean decades whereas for sophisticated investors, it can mean a day or even an hour. Covering up this underlying difference, many of the rich use their salespeople to spread this lie, duping the financially illiterate to park their money for the long term while they eat off this money via fees.

One clear example would be mutual funds where investors pay 100% capital, take 100% risk and earn 20% of the profits. The remaining 80% of the profits is subsequently siphoned off by the fund managers via fees and commissions for their picking the right stock. Here, as more people invest in these financial tools, the rich will get richer and if you put your money in there for the long term, these financial predators will devour your money bit by bit until you are left with bones.

While not all of the rich are such people, many of them do such things to remain rich and one thing that fueling this would be people’s gullibility and financial illiteracy. Hence, I believe that it is wrong to invest for the long term. Why let people prey on your money when you can use it yourself?

Now, I will move on to exploring why diversification is not good for your financial health. Warren Buffet once said that diversification is a protection against ignorance and I deem this to be rather true. Today, most financial advisers recommend diversification because this allows them to sell more and evenly spread their risk if they are wrong. This would be to their advantage as these salespeople will be able to earn more commissions from you by putting on the cloak of being an expert. Because of this, they continually preach about the benefits of diversification to convince people to hand over their money to them.

To add on, diversification is wasteful of your money because investments like mutual funds which these people sell are already diversified in paper assets. Thus, if you buy 3 different funds, you may buy 3 same stocks they own. This is rather unwise because you probably can work your money’s magic elsewhere.

In addition, diversification would also mean different concepts to different types of investors. For the greenhorns, it would mean investing in different stocks. However, for the pro investors, this same word would mean investing in businesses, income-producing real estate, paper assets and commodities (like silver and gold). Most financial planners do not tell you this because they are only licensed to sell paper assets which you may not need. To me, this is a flawed definition of diversification that is being circulated around to con people of their money and I hope you will be more educated financially after reading the facts above.

Hence, to conclude, I believe investors now have a clearer idea of how to differentiate between good and bad financial advice. Now, your next step to greater wealth would be to enrich yourself with financial knowledge.

How a Financial Education Program Can Help You Achieve Financial Independence

Every day we are learning that individual debt is growing at an astronomical rate and people spend far more than they earn. Foreclosures, bankruptcies and consumer delinquency have reached an all time high. A major part of the problem has stemmed from the fact that the majority us were not provided with a financial education program either at home or in our schools. A financial education program and money management strategies should have been a compulsory part of our school curriculum.  

In their book “Why We Want You To Be Rich” Donald Trump and Robert Kiyosaki stated that “the lack of financial education in America has caused the United States to have quickly gone from the richest country in the world to the biggest debtor nation in history”. Their concern is that “the rich are getting richer but America is getting poorer”. They expressed that there will be not be a Middle Class in America but a two-class society. People in America will either be rich or poor.  

While many of us have graduated from schools and colleges and earning large sums of money, the majority are still uneducated about how money works. We were not taught how to manage and invest money which is an important life skill. A financial education program will teach you how to have money work for you instead of you working for money. It will educate you on matters such as balancing your check books, ways to save money, how to manage your credit, how to invest your money, what to do with your paycheck, how to pay off your debts, how to plan for your retirement, and how to achieve financial independence.  

Lack of a proper financial education has made the majority of us become the prey to advertisers and credit card and other money lending institutions. These institutions are the ones becoming wealthy with our hard earned money.  With a sound financial education we would be well equipped with the knowledge to exercise financial control and overcome the manipulations of the advertisers and unscrupulous credit companies who want us to spend above our financial means.  

Many people dream of achieving financial independence and feel that it is unattainable. They think in terms of winning the lottery to achieve that goal. They do not envision that their dream to achieve financial independence can be molded in their own hands and that they are the masters of their financial destiny. What they fail to realize is that by using credit cards and being slaves of advertisers they are actually giving away their wealth. By getting into a financial education program and learning money management strategies and skills on how to manage your money you will have the cash flow to rapidly build your wealth. It will also provide a firm foundation to build a prosperous future.  

When you implement the tools and knowledge you gain from a financial education program, you will be able to make sound financial decisions and overcome financial challenges and obstacles. You will also learn personal development, self restraint, discipline and financial control. You will learn how to create cash flow with your current income and how to accelerate payment and eliminate debt. Once you start debt elimination you will have the cash flow to build your wealth. Wealth accumulation will lead you on the right path to achieving true financial independence  

Lack of a proper financial education has made the majority of us become the prey to advertisers and credit card and other money lending institutions. These institutions are the ones becoming wealthy with our hard earned money.  With a sound financial education we would be well equipped with the knowledge to exercise financial control and overcome the manipulations of the advertisers and unscrupulous credit companies who want us to spend above our financial means.  

Economic Recession Tips – Insights From A Financial Guru That Can Help You Protect Yourself

The Problem

The current economic recession has had a tremendous negative impact on this country. Few among the shrinking middle class would disagree with this assessment. The gap between the rich and the poor is widening more and more. Jobs are scarce, recovery is a joke, and the outlook leaves much to be desired. So what can you do? Are there answers to these problems? Let me take the opportunity to share some recession tips I culled from one of America’s top financial gurus.

Rich Dad

Robert Kiyosaki, author of books like Rich Dad Poor Dad, Conspiracy Of The Rich, and many others, has been offering alternative views of wealth creation for years now. His philosophy of entrepreneurship may be summarized as a departure from long-held views about money and exploring how financial education plays a crucial role in how people succeed or fail financially. He has long been about the business of demolishing the sacred cows of the financial status quo.

In a more recent mini-documentary, aptly titled Shooting the Sacred Cows of Money, Kiyosaki discusses the role of public education at perpetuating outmoded views of money and personal finance. There are two types of education in the school system. Primary education includes reading, writing, and arithmetic – all very necessary skills. Then you enter secondary education that focuses on specialization in certain areas like law, medicine, technology, or some other field. Little attempt is made to provide credible financial education beyond balancing a checkbook or opening a savings account.

Such issues are compelling when so few people are competent to manage their finances – let alone prosper. Certainly, the recession isn’t helping, but I think there is reason to consider some of the following tips to better your chances of succeeding.

Recession Tips

Develop a financial statement – Once you recognize the value of a strong financial education, you should create your personal financial statement. These include both income statements and balance sheets. Such tools, when evaluated by professionals like financial managers and bankers, can help you figure out your level of financial knowledge. You will know whether you can make smart decisions about your money or not. It’s like a financial report card.

Overturn popular thinking – The whole trend of education is to prepare people for the workforce. Kiyosaki says it is training them to be employees who work for the rich. In fact, you’ll see two types of people. Those who learn only to be employees – thus, dependent on employers – or those who have a level of street smarts that lets them explore other opportunities for creating wealth. This second group includes entrepreneurs and others who want to work for themselves. Given the state of the economy and the number of traditional employees who’ve lost their jobs, those with street smarts, or those who have greater financial knowledge may be better suited to succeed.

Get financially educated – Financial education can seem as challenging as learning a new language. When faced with the details of real estate, stocks, entrepreneurship, commodities, oil and gold you can get over your head rather quickly. Yet, financial education offers a key to unlock a new world of opportunities. You must take steps to improve your understanding of these various concepts.

Be Proactive

Get out of your personal rut and use these recession tips to plot a new course to financial security. Don’t wait for someone to give you hand out or take care of you. You must take action immediately. Destroy your own sacred cows and start seeking real change for the better. It is the only way to improve your financial future.

April Is Financial Literacy Month – Does Anyone Really Care?

Yes, April is financial literacy month and here and there in the media you’ll see references to April being financial literacy month. There will also be another(6th) annual Financial Literacy and Education Summit at the Chicago Federal Reserve again this year, among other scattered recognition activities around the nation, but outside of a few interested parties, does anyone really care about financial literacy and, if not, why not?

It seems to me that financial literacy and the whole subject of financial wellness just does not get its due, especially in light of the serious personal finance problems faced by U.S. citizens over the past few years, and the uncertainty about once-stable institutions such as Social Security, Medicare, and corporate pensions.

During the recession, many found themselves overextended on mortgage loans they shouldn’t have taken in the first place. Home values dropped and they continue to decline today. Credit debt reached soaring heights and large numbers lost their jobs and, outside of unemployment compensation, few had additional resources to sustain them. And the importance of retirement savings hit home for the first time for many, as retirement accounts were depleted by multiple thousands of dollars; causing many retired people to bail out of the market at its low point. Yes, for the first time, many U.S. citizens got a good taste of what a “great” recession can do in terms of devastating personal wealth.

You would think any nation that just went through what we’ve been through would do a thorough examination of the matter and put safeguards in place to ensure any similar problems in the future would be handled by its citizenry with greater knowledge and skill. Certainly, one could quickly conclude that a good foundation in personal money management would be beneficial to anyone that would have to face the challenge of another recession, or just the challenges that go with managing one’s day-to-day personal finances in our erratic financial world. A natural jumping off point, it seems to me, would be to take quick action to bring personal finance training into our schools, so the next generation might be better prepared to deal with their personal finances and/or the next great calamity.

Unfortunately, according to the 2011 Survey of the States, a survey that reports on the state of economic and personal finance education in our nation’s schools, only 22 states require an economics course for high school graduation and only 16 of those states require testing in economics; 3 fewer than in 2009. The number of states that require students to take a personal finance course is just 13. The survey reports that in schools where financial education is required the students were better savers, were less likely to max out on their credit cards, were less likely to be delinquent on their credit card payments, were more likely to pay off their credit cards in full each month, were less likely to be compulsive buyers, and were more willing to take average financial risk.

The survey also showed that the average college student in the U.S. had $25,250 in student loan debt at graduation in 2010; up 5% from 2009. And the last time I looked at this statistic, graduating seniors were carrying 4 credit cards on average.

Information like this related to the limited financial training we provide for our students, in light of the myriad of financial problems this country has experienced, leaves me with the feeling that, outside of a few, we as a nation are only willing to give the subject of financial literacy lip service and not serious consideration. We’re not willing to invest the money necessary to grow our financial education programs, nor are willing to make mandatory, with few exceptions, the requirement for developing critical lifelong personal finance skills.

With our students not getting the financial education they need, they go into adulthood without important survival skills. We allow them to go on to become adults and fall into the many financial pitfalls that await the uninformed and unskilled.

Well, you might say, the parents should be providing their children with financial education at home. Well, the parents generally don’t, no more than they provide home training in physics. Remember, few of the parents ever had any formal training in personal finance matters. This training will generally have to come from competent, qualified educators in the schools or the child’s adulthood will likely be a matter of learning from the school of hard knocks.

All too often it’s the school of hard knocks that wins out as there are volumes of information out there that speak to the financial distress adults feel, because they either don’t have the skills or interest in keeping their personal finance houses in order. For those that lack the skills, but feel the heat that goes with being a poor money manager, financial stress is often the order of the day; stress, which if not checked, can contribute to disease. Personal finance problems are also linked to many social problems; not the least of which is divorce. We know that the number reason for divorce is money.

In last year’s MetLife 9th Annual Benefits Study, this was the conclusion reached about the link between financial stress, healthcare, worker productivity and the achievement of business goals:

  • “The recession has resulted in widespread financial insecurity across all employee age groups. In fact, there is a virtual “epidemic” of financial stress, and there is compelling evidence that “financial illness” also contributes to health care costs, as well as to reduced productivity”.
  • “As much as employers have been focused on traditional health and wellness, there is compelling evidence that “financial illness” also contributes to health care costs, as well as to reduced productivity. Employee financial security may be a major driver in accomplishing business goals”.

Based on these conclusions from MetLife, surely you would expect employers to be taking an aggressive stance and bringing in personal finance training for those many of their employees that never had the opportunity to receive training, but it appears little is being done in the workplace to promote financial wellness. There are a few progressive leaders out there that are introducing financial literacy/wellness programs in the workplace, but this is a limited group of employers.

With 70% of Americans living paycheck to paycheck today and the lessons learned from the 2008-2009 recession, you’d just think we’d be doing a lot more now to make sure we handle the next challenge better than we did in the past, but I’ve yet to see that happen. So, have your April Financial Literacy month this year and next year and the next year, but does anyone really care?