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.

I thought about non-family or extended family and concluded that most people did not even have the foundation my kids did. They were even more ignorant of such issues. I “googled” financial illiteracy and obtained 7,080,000 hits. To see how widespread this ignorance is among college students read this.

As an aside, college is mostly a bad use for good money these days. Kids are indoctrinated rather than educated. (By the way, despite a PhD, or perhaps because of it, I am convinced my grandkids should not go to college. But that is a whole other issue which will be addressed in a forthcoming post.)

Like the Man of La Mancha I embark on a new quest — tilting at the windmills of financial ignorance. I shall devote some effort to the very basics (which my family knows but repetition may be beneficial) like saving and compound interest. But more importantly, address the range of investment options available to those seeking financial security. The discussions will be for laymen, not financial practitioners. Reader reaction will determine how far this series goes.

By the end of the series, a simple road map with options should be available. This road map is not a get-rich quick scheme. Sadly, there is no hidden wisdom containing secret routes to financial security. However, pitfalls will be pointed out and means to mitigate or avoid them completely will be shown. The intent is to show investment novices that success is not dependent on superior knowledge or secret techniques. Success depends on proper habits and proper risk control.

If things develop as I believe they should, even unsophisticated investors can follow basic guidelines to financial security. No inside knowledge or stock research is necessary. Nor is a financial adviser unless someone desires (I believe) an unnecessary security blanket. Financial advisers can be useful to oversee your plan, make sure you stick with it and deal with unanticipated or specialized events (e.g. life emergencies that require modifications to the plan, life insurance, estate planning, etc.).

At the end of this series, you should be able to reasonably decide whether you can go it alone or need oversight and to what degree.