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Educating Yourself Financially

I am often asked by clients what sort of things they can read to increase their financial literacy and generally just make better decisions in the area. If you have ever gone into the financial section of a large bookstore you are probably aware how overwhelming the number of books written by so called experts can be, as well as the wide variety of topics. Most are surprised to find that in general I think it is wise to avoid almost all of these.

In general, the biggest help you give yourself and your children would be to read a book called “The Richest Man in Babylon” by George Clason, as well as a “Think and Grow Rich” by Napoleon Hill. The second is not really about finance technically but the lessons, if followed, will surely lead to financial independence. The former, is a set of principles to follow which are told via a story set in ancient Babylon. Long before any of the advents of modern finance, the thriving society of Babylon produced an extremely wealthy class of citizens and the basis on which they grew and compounded their wealth is still valid today.

That said, there are some more technical bits and pieces that it is good to have a general knowledge of, and the first thing of utmost importance is to separate and know the difference between speculating and investing. Speculating is more akin to gambling, and a large portion of that book section I mention above will be speculative strategies. Ignore until you are very secure, and then always remember speculation is only for risk capital, money you can afford to lose in its entirety.

Investing intelligently and cautiously is how most fortunes are made. In today’s world everyone is looking for a get rich quick scheme, but you can be a low paid janitor and if you follow the right investment principals you will eventually retire rich. If you are interested in the stock market, read up on Warren Buffet and follow his approach as closely as you can. Otherwise simply dollar cost average into the markets by placing a small amount of money at risk every month into a diversified vehicle such as an index ETF (exchange traded fund which mirrors the return of the index, or market). Over 20+ years you will surely come out far ahead of the crowd.

I think knowing what to avoid reading is as important as knowing what to read. Books on options trading strategies are great if you want to be a full time speculator and are exploring the various strategies and securities you can use. However keep in mind this is either a full time profession where the youngest and sharpest minds of the world are competing, or else the modern casino of the very rich who can afford to take the losses.

When it comes to financially educating yourself stick to the classics. Choose a boring but tried and tested strategy that will pay off slowly over a long time horizon. Once there, you can take a small portion of your wealth and try your hand at some of the more exciting stuff.

David Mayes MBA provides wealth management services to expatriates throughout Southeast Asia, focusing on UK Pension Transfers. He can be reached at david.m@faramond.com. Faramond UK is regulated by the FCA and provides advice on pensions and taxation. Views expressed here are his own.

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