The average college graduate finishes school with $23,186 in student loans.
Quite likely, he spends a few years after school building on that debt.
At some point, he figures things out, and begins to work toward paying it off.
Finally, he begins to look for information about getting started with investing. More likely than not, he ends up buying some nonsense about picking stocks or hot funds.
He tries that for a few years (or more). Perhaps he gets lucky and it works. Perhaps not.
Eventually, something turns sour and he decides to try a different method.
Perhaps that one works for a while. Perhaps it doesn’t.
Hopefully, before it’s too late, the investor figures out that the problem is not with his method of picking stocks, his method of picking hot funds, or his method of predicting market movements. Rather the problem lies in the fact that he’s attempting it in the first place.
Skipping Steps
The investment industry is in an eternal September. There’s an endless supply of beginner investors for the financial industry to prey upon. As William Bernstein (of Four Pillars fame) recently put it, “[Increasing aggregate investor competence] is a process so glacially slow that the grim reaper easily outruns it.”
But that doesn’t mean that you have to be as slow as everybody else. You can skip steps in the above process. You don’t have to make all the same mistakes that other investors have.
The solution–while perhaps rather boring–is simple:
- Read books about investing.
- Then read some more (preferably from sources that offer viewpoints contrary to those of books you’ve already read).
- Ask your friends and family about what financial mistakes they’ve made in the past.
With financial decisions, it often takes several years before you learn whether or not you made a good choice. Why not accelerate the process by learning from others?
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{ 4 comments }
This posts resonates with me because (with the exception of student loans – and i only have my parents to thank for that, not my own financial competence), i did every wrong thing you mentioned along the way. Now i am 37 and just started understanding these things when i should’ve figured it out in my early-mid-20s. We need to educate our new grads/workforce….thanks for getting the word out.
The big problem (in my view) is that we are forced to invest. You cannot opt out because you don’t want to learn about investing. Lots of people don’t want to learn about investing and yet feel compelled (properly so, of course) to finance their retirements so they invest anyway and then make a lot of mistakes.
Then there is the natural human inclination not to want to admit mistakes, which causes the earlier misunderstandings to become set in stone over time.
We need more humility in the investing area, in my view.
Rob
Mike,
I feel like your are describing me – LOL – your post pretty much sums up my post college experience.
JC and Dave: Sorry to hear that you each had to learn things the hard way. Good to hear that you’re both on the right track now though.
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