Thursday, November 6, 2008
Money . . . "the sordid topic of coin" as Isabella Rosellini says in one of my favorite quotes from "Death Becomes Her," . . . I know that the number 1 fear spot for most Americans is public speaking. Simply raising your voice to be heard above the crowd is feared more than death, but I don't know where money ranks on the list. Certainly some people's money fears paralyze them to total inaction, whereas others act quickly and irrationally. Despite FDIC insurance, we did have a run on some of the banks during this financial crisis and despite FDIC insurance, some people did lose money because they held more than the insured amount in an institution.
You may have heard Dr. Phil say "you don't solve money problems by throwing money at them" or perhaps you've heard the statistics about lottery winners . . . they tend to settle back to the financial status they were at BEFORE winning the lottery. Moreless, if they managed their money well, they still did and if they didn't, they still didn't.
I think one of the reasons that money is so scary is that there are no set rules as to what to do with your money. The best choice at any given time is fluid and changes with the state of the world. For instance, how many people, right now, have $7000 in their savings account at about 1% interest, while they are carrying $7000 of credit card debt at 25%? How many people make the minimum payment on their mortgage at 5 or 6%, while holding that savings account at 1%? Simple math tells you to gravitate to the solution that earns you the most return; simple fear keeps you from doing it.
Warren Buffett says "Be fearful when others are greedy and be greedy when others are fearful." But truthfully, the individual investor tends to buy at the top and sell at the bottom. At the top, we're afraid of missing out on opportunity and at the bottom, we are afraid of losing it all . . . frequently just before things were going to get better.
Most of the time, we would rather trust someone else's judgement than learn about the subject and trust our own. I suppose it gives the illusion of someone else to blame.