Many times I’ve been terrified of people taking money decisions without knowing what they are doing. Or who they speak without knowing what they say.
Almost daily I receive my email where people confuse, for example, banks or even insurance Afores that offer retirement plans. Or savings to operators of investment funds.
Of course there is nothing wrong with asking, my vocation is to guide, educate and help. But most people do after they have already made bad decisions of money and therefore suffered a setback.
Perhaps the most frustrating thing is that even if you try to make them understand what happened, closed and still think that everyone in the financial world are thieves.
Take the case of disability of the Afores, I have tried to explain many times and correspond to normal movements in the financial markets . Not all instruments up at the same time and sometimes go down in value (including instruments that pay a fixed rate).
That’s part of investing and should understand what happens and why it happens, before issuing an opinion. However, there are plenty of people complain that the Afores are another scheme more to strip workers of their income. Nothing could be farther from reality.
Bad money decisions
There is also the case of the person who complained because he invested in a fund that had heavy losses (and certainly the assumed, taking their money). This happened just before the 2008 financial crisis that saw falls in the stock values higher than 40% (later recovered, of course, as always happens, even if it took a little time).
The point is that this person did not know it had invested 100% of its resources in equity fund. Although he signed his profiling questionnaire and also that he had read the information leaflet that fund investor public.
He was simply dazzled by historical returns he saw in the announcement, and immediately put your money in there thinking I was going to multiply. Not knowing what she did, without understanding his chosen instrument and without knowing what their money was invested . This is a clear example of how not to make money decisions.
Interestingly, neither him out was a good decision because if I had left about three or four years have actually obtained a very interesting performance of its original investment. Withdraw their investment at the worst time is also an example of how not to make money decisions . It is also important to point that out.
But bad money decisions not only given within investments. Also in mortgage loans, for example people who think that using your credit Infonavit is the best choice, when as I said, is the most expensive credit.
Money decisions that guarantee failure
Many people take money decisions that practically guarantee the financial debacle.
There have clear investment objectives and therefore the horizon of the same. This is key to deciding how to invest our money, because the more time we have, we can assume greater volatility.
Not knowing the risks – neither one is prepared to take, nor has the investment that we make.
Heeding the recommendation of the executive of the bank, or “adviser” or seller of mutual funds. In my experience there are few who have basic knowledge of finance. Besides its main task it is to place the products of the institutions they represent, and not advise or seek the best for us.
So invest too conservatively. Many people continue to invest tons of resources in bank notes with interest below 1% per year (when inflation is above 4%). They are “guaranteed” but it’s the “safest” way to lose your money without realizing it ( inflation “eats” their purchasing power ). Especially in longer maturities.
“Hunting “returns regardless else . Just ask people who invested their life savings in FICREA for thinking they were “safe”. When someone offers a fixed rate and “guaranteed” well above the market average, as did FICREA, always be suspicious.
The trend that we have not invest in financial markets .Many people are afraid of investment funds, brokerage houses, even the Afores that offer returns that are not “fixed” and because it can be – depending on what you invest – volatility.
We must get used to it is part of life but it is also something that we can control through adequate diversification. There are instruments of very little or no volatility (such as 28-day Cetes that pay a fixed rate), there are others that can be very volatile to incorporate depending on our investment horizon and our own risk tolerance.
Take a loan to invest. Perhaps one of the worst decisions of money, as I explained here.
Not protect our heritage properly, it can be ironically, the safest way to a debacle.
But undoubtedly the most common way of making bad decisions of money is simply not understand the decision we are taking. That is the biggest risk of all and that we should avoid at all costs.
How many people have lost their money perceiving a false sense of “security”? It’s time to wake up and try to understand our options (which is not difficult, despite all the financial “jargon” that drive us). It’s time to do our homework and learn to make good money decisions.