Survey shows adults struggle with financial literacy
One of the reasons SmartStops came into existence was to help investors worldwide understand the risk they were taking when owning a stock or ETF. As the article points out: “..Understanding risk is critical to a person’s financial well-being.” The concept of Risk in the stock market originally focused on modern portfolio theory’s of diversification. But in today’s computerized/internet age, even that has shown to be insufficient. We, at SmartStops, hope to help investors move into a more profitable Buy & Protect vs. Buy & Hold mindset by proving the efficacy of such an approach.
From article here:
Risk diversification. The concept that most people didn’t understand was risk diversification, or the idea that you need to diversify assets to minimize potential losses.
Lusardi, who teaches an elective course on personal finance to graduate business students at George Washington University, says she’s not surprised.
“I’ve seen the same thing in my class,” she said. “It’s just a harder concept because you’re talking about probabilities. And with diversification, you have to think about correlation. It’s just more complex.”
But understanding risk is critical to a person’s financial well-being. As Lusardi noted, most financial decisions involve some type of risk, from buying a home to deciding how much money to save for retirement.
And worldwide, it is becoming increasingly important to teach about risk and other financial basics.