One of the most important rules of investing is this: Don't invest in anything you don't understand. If you don't understand stocks, don't invest in them. If you don't understand options, don't invest in them. If you don't understand futures contracts, don't invest in them. If you don't understand credit default swaps, well … don't worry, because no one understands them. 😉
Good money education is a critical component to your financial soundness. Why? Because no one cares as much about your money as you do. Everyone else cares about their money, and if they can get some of your money by offering you a product to make money, they will. Whether you make money or not is largely immaterial to them. What makes them money is very important.
When Vanguard (and just about every other financial blogger on the planet) talks about why index funds are good investments, they talk about the low fees that come with not having to be as active in managing the makeup of the fund. “Low fees” are nothing more than a selling point. What are the advantages and disadvantages of owning an index fund? Heck, what's in the index fund? What's the market it's indexing? These are all questions that need understandable answers.
I asked a question over at Cash Commons about what stock screeners people use. No answers yet, but Frugal Lawyer piped up and asked: “What's a stock screener?”
I'm very glad she asked this question. It's a bit like raising your hand in a lecture with 200 people to ask a basic question about what's being discussed. It takes courage. And just like in the lecture situation, there are probably a whole bunch of other people that had the same question, but were afraid to ask it, and were glad you did.
Fundamental knowledge is the most important kind of knowledge to have about a subject. Part of this is understanding the basic terms used in the subject. Next is understanding the terms that can get easily confused. Then, with a basic vocabulary in place, now you can read something and begin to understand what's being discussed.
Don't be afraid to ask about what you don't know. It could cost you.
Obviously, the reason we hesitate to ask these questions is to avoid sounding stupid. But recently I’ve noticed that a lot of higher ups in my company have no problem asking questions that, at first, make you wonder why they would risk asking when it makes them sound ignorant.
Then they start talking about something else and you think, “Wow, this person really knows their stuff. They are really smart, and it probably has to do with them having no problem asking these questions.”
As long as you only ask it once and get an answer—boom—you’ve come out ahead.
You hit on an important lesson mbhunter.
Professionally I facilitate a variety of classes for businesses. It’s amazing how often people nod their heads when you introduce a subject, but it is obvious they are lost.
I have seen people that have fumbled in their careers for years struggling to accomplish goals or coming up with creative ways to work around their obstacles.
Too often, they only need to ask a question and their life would be made much simpler and more efficient.
It’s a shame how much time, money and energy are wasted simply because people won’t speak up!
No question is a dumb question.