Five Ways to Increase Your Financial Investment IQ

Five Ways to Increase Your Financial Investment IQ

October 10, 2016FinanceFive1562Views
Five Things

Congratulations! After years upon year upon years (upon years ad nauseum?) of taking out student loans, working odd jobs and part-time employment, desperate pleas for your parents to extend your allowance, and other activities you’ve engaged in to financially support yourself through undergrad and graduate school, you are finally making money!  Your bank account has never had this much digits in the black, and your fantasy life is starting to get filled with things you intend to purchase.  But then you hear other people talk about investments, stocks, bonds; and you’re not really sure how that works.  I suggest starting with these five ways may increase your investment knowledge.

(It needs to be said that the following are solely my opinions, and is not meant to be taken as financial advice or endorsement of any product/service.)

Find a Financial Planner

One of the more traditional approaches to increasing your financial IQ is to speak to someone who more financially informed.  Among the many people in your life that can fill this role, one particular professional you might wish to engage with is a financial planner.  Many are employed by the money management services arm of most large financial institutions.  Others may operate as an adjunct service for other financial businesses such as accounting, business management, or business law.  There are also those that operate independently.  One element you would like to ensure is your financial planner’s commitment to “Fiduciary Duty”—  the planner’s legal responsibility to act in your financial interest.  A close second to consider is their membership in regulated professional groups.  Depending on your location, this may mean them being Certified or Chartered Financial Planners.  Of course, this should only be the start, and not the end, of your process of finding a financial planner who might be a good fit for you.

Reading Up on Personal Finance

From the physical to the digital, almost every form of media includes a subset delivering personal finance content.  In this section, I will be using examples from my own personal journey of developing a better understanding of investing.  One introductory book I’ve found quite accessible was the The Random Walk Guide To Investing by Burton Milkier.  Recently, I’ve also been interested in reading The Index Card: Why Personal Finance Doesn’t Have to Be Complicated by Helene Olen and Harold Pollack, a book borne from the idea that good  investing ideas can fit on a 4 X 6 Index card (hence the title).  Digitally, there are many personal finance blogs for different audiences and demographics.  An oldie but a goodie I occasionally visit is Get Rich Slowly.  One more digital source I am currently learning to appreciate are podcasts.  While I have yet a personal finance podcast I enjoy, I do encourage to check your Podcast,  Soundcloud, or Stitcher app.

Algorithmic Investing

If speaking with another person tends to be the more traditional way of increasing one’s knowledge, algorithmic investing can be considered the newest.  In this case, there is very little human contact (except when you have to contact customer service, and even then you’d probably have to go through a computerized operator first).  Instead, such services argue that computers driven by data and algorithms (developed by data analysis and experienced investment professionals) will lead to better investment performance compared to emotion-driven investing that usually characterizes many (human) investors.  Granted that this may be a less involved form of investing, such websites tend to have a detailed knowledge/FAQ section to encourage customer informed consent.  The two of the companies I hear often that you may be able to check are Wealthfront and Betterment.

*Entries four and five are suggested for readers with some basic  familiarity with financial terms, products, and structures, and motivated to further increase their knowledge and involvement in investing.

Increase your Financial Fluency

The deeper you go into personal finance, the more you realize the many areas or topics one can familiarize with oneself.  When I start getting lost or confused with terms like “price-earnings ratio,” “convertible bonds,” and other financial terms, my first stop tends to be  When it comes to finance blogs, one of the best collection of financial articles I’ve found is Seeking Alpha.  The website collects articles written by finance professionals and organized around specific categories.  Last, if your desire is to get as close to the “raw data” of financial instruments, consider looking up and reading the prospectus (for bond or other bond-link instruments) or readily-available financial statements for publicly-traded stocks.

Immersing Oneself in Business and Economic News

2If you want to understand the larger forces influencing your investment portfolio, your rate of return, etc., you need to make time to stay informed with the world of business and economics.  Personally, I enjoy the coverage by Bloomberg and the Economist and have found them as good sources for financial and economic analysis, even if I don’t agree with them all the time.  (As an aside, posts on our Facebook page from these websites tend to come from me.) Finally, speaking once more of podcasts, I regularly listen to Marketplace by NPR for a summary of US economic news.  Of course, there are many other great sources of reporting available to keep you engaged and informed.

Are there specific topics related to personal finance you’d like to read more about?  Are there books, blogs, podcasts, and other resources that you have found helpful to keep you informed about investing?  Please sound off in the comments below or on our Facebook page.

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