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The 3 Financial Delusions That Keep You Poor
February 11, 2017 - By: - In: Trading Psychology - No comments

There are the 3 financial delusions that act as road-blocks to your accumulation of wealth. These are assumptions (and most of the time excuses) that people use to justify their financial situation. In short, these delusions are keeping you poor.

By the time you’re done reading this, you will see how inaccurate and unfounded these myths really are, so that you can choose a different future.

DELUSION 1: “It’s better to leave it to the experts”

This is what the experts would like you to think. And even if you thought it to be true a few years ago, you’d have to have been living under a rock to still consider this one accurate. The ‘experts’ have cumulatively brought the financial world to its knees, while many were receiving eye-watering bonuses that were paid regardless of performance.

Economist and author Burton Malkiel studied the performance of fund managers and published his conclusions in his book A Random Walk down Wall Street. In it Malkiel writes:

“While the index may not win every single year, decade after decade two-thirds or more of professional funds are beaten by (the) index. Similar results can be shown for different time periods and by using different indexes for comparisons. Results are also the same for international markets as well as for different asset classes such as bonds and real estate.

The same result holds for professional pension fund managers, and even for highly compensated hedge fund managers. Those funds that do produce excess returns in one period are not likely to do so in the next.”

In other words, by the time you take into consideration the management fees, most people would be better off passively investing in an index fund and not paying for expert advice in actively managed funds at all! Remember, all of these ‘experts’ are being paid regardless of whether they choose wisely or not.

The simple fact is that no-one will care about your money the way you do.

DELUSION 2: “I don’t have time”

Let me ask you one question and one question only…

How much time did you spend online last week? Count up the hours that you spent on social media, or on your phone.

I’m not saying you have to give up what little relaxation time you have, but what about halving the amount of time you spend on social media or your phone, and using the rest of that time to increase your financial education?

Whatever you do with your day, the real issue is not time, its commitment. We all have busy lives, work, family and friends — sometimes it can be hard to put time aside for anything extra. However, if your financial future is important to you, then you simply don’t have a choice. You have to find a big enough ‘why’ in order to rearrange your life a little and find the time.

Viktor Frankl, concentration camp survivor and author of the famous book Man’s Search for Meaning, said, ‘Those that have a “why” to live, can bear almost any “how”’.” 

Confucius said, “We are so busy doing the urgent that we don’t have time to do the important”.

Unless we reverse that equation, we will never make the changes required to really create wealth and long-term prosperity. There will always be some urgent task that overshadows what you really want for your life. You are the only one who can make the changes so that you do find the time to be rich.

DELUSION 3: “Investing is as good as gambling”

Yes it is — if you don’t know what you are doing. Investing is the same as gambling if your investment choices are based on guess work, pot luck or my personal favourite — the ‘hot tip’.

In those situations, investing and gambling is the same thing. You can’t control or predict the outcome — you can just cross your fingers and toes and hope that it’s your lucky day. It’s completely random. And, for the record, a recipe for disaster!

True investing, on the other hand, is educated and calculated.

The risks are minimised at every turn. Sure, investments go up and down, but over the long term smart investments always go up. In the past decade, the world has had a financial jolt and in Europe and the United States financial markets have been badly affected.

The risks are minimised at every turn.

Sure, investments go up and down, but over the long term smart investments always go up. In the past few years, the world has had a financial jolt and in Europe and the United States financial markets have been badly affected. According to Forbes magazine, there were 1125 billionaires in the world in 2008. A short one year later, there were only 793 billionaires as 332 were relegated to mere millionaires.

Bill Gates saw his fortune plummet from $40 billion to $18 billion, Warren Buffett from $37 billion to $25 billion. So, yes, investing can go down as well as up. But I’d rather manage on $18 billion than lose nothing because I have nothing to start with! These people know that, after taking a hit because of the global financial crisis, their investments will rally again.

Nothing lasts forever — neither boom nor bust.

There is no better time to get educated about investing so you can take advantage of the opportunities as they arise. Being educated is the key difference between gambling and investing. And as someone once said, ‘If you think education is expensive — try ignorance!’

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