Investment Novices — Financial Illiteracy

Two recently published articles have gotten a bit of attention, apparently from investment novices. These were The Permanent Portfolio, Harry Browne’s innovative approach to investing and  The Universal Portfolio — A Portfolio for Lifetime Investing, a modest attempt to make Browne’s work more relevant by adding the notion of life-cycle investing.

My motivation came from my wife and children.Perhaps they suppose my eventual demise to be sooner rather than later. I still cannot determine how much of their demand was prudent thinking as opposed to wishful thinking. Nevertheless, it spurred me to produce the two articles.

Now that this problem was solved (or so I thought), I could return to more interesting (for me) pursuits.

Investment Novices

It turns out that these articles raised even more questions from the family. This additional interest is troubling because it reveals them to be investment novices.

My children have degrees in economics and are successful in their chosen fields. My wife has a masters degree in psychology and, merely by osmosis I assumed, had picked up all this information. When I explained to her that living with me had to have “educated” her in these basics, she countered that living with me should entitle her to a doctorate degree in psychology. I think the word “abnormal” might have preceded “psychology” at least once in the discussion.

Don Quixote Saddles Up Again

I was shocked at my own family’s ignorance, especially when they were exposed to financial common sense growing up. Thankfully, they absorbed the thorough grounding in what Albert Einstein described as “the eighth wonder of the world” and “the most powerful force in the universe,” compound interest. They learned to save early and often.

Their foundations were sound, but they didn’t know how to leverage savings via prudent investing. They knew that I believed that the financial world was heading toward a collapse. Apparently this spooked them to avoid proper exposure to financial markets. Regardless of how negative your view of the future, some exposure to markets is always necessary.

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