In a world where market volatility and economic predictions are staples of daily conversations, investors often find themselves asking what will happen with the market. While it’s a reasonable question, it’s not the most prudent question they should be asking. Investors often search for certainty in an uncertain world, wanting stock tips, market forecasts, or the latest tips and tricks, all of which amount to speculating and gambling with their money. “No one can tell you which direction the market will go, up or down,” says Mark Matson, founder and CEO of Matson Money. “And if they could, they wouldn’t tell you.”
Prudence in long-term investing lies not in predicting the future, but in having confidence in your long-term investing strategy over a lifetime – and that requires understanding not only what you are doing with your money, but why.
Why Financial Literacy Matters in Investing
Financial literacy can empower investors to make informed decisions around their financial future. Unfortunately, many Americans are under-educated when it comes to financial literacy, which can result in ill-informed and potentially disastrous decisions around their money.
Fast Facts:
- 25% of Americans say they don’t have anyone they can ask for trusted financial guidance.1
- Only 25 states require students to enroll in an economics course to graduate from high school.1
- 60% of non-retirees didn’t think their retirement savings were on track in 2021.1
- 4.64% of American adults report that money is a significant stressor in their life.1
Those interested in investing often lack the financial education to invest prudently. A first-time investor’s initial investment should be into their financial education. Rather than getting swayed by short-term market movements or panic-producing news headlines, financially literate investors are equipped to focus on core principles of prudent investing such as risk management, asset allocation, and diversification. This focus can help enable a strategic, disciplined approach that prioritizes potential long-term growth over speculative gains.
A common pitfall for investors is focusing too heavily on trying to “beat the market” by picking individual stocks or potentially risky investing vehicles like cryptocurrency. However, as Matson points out, past performance has little correlation with future results. “The unpredictability of the market means that no fund manager, no matter how skilled, can consistently outsmart it over the long haul,” he says.2 Financial literacy can teach investors to avoid such speculative strategies and instead embrace academic investing principles, such as Modern Portfolio Theory, which emphasizes broad diversification and efficient risk management.3
Asking the Right Questions
The journey to prudent investing can begin by asking the right questions. To invest prudently, investors can ask questions that promote clarity around what investors are doing with their money and why. Such questions shouldn’t focus on future predictions but on understanding risk tolerance, investment goals, and strategies aligned with personal values and financial needs.
For instance, instead of asking, “What stock should I buy next?” a financially literate investor might ask, “How does this investment align with my long-term goals?” or “Am I prudently diversified to help mitigate risk?” By reframing the questions, investors can have access to peace of mind around investing. Instead of chasing trends, they can build a robust investment strategy that’s designed to weather market fluctuations.
Moving from Fear to Abundance
Financial literacy isn’t just about an amount in a portfolio; it’s about moving from a mindset of scarcity—constantly fearing market downturns or a shrinking portfolio—to one of abundance. When you understand how the markets work and why, you’re less likely to be rattled by daily fluctuations or economic headlines. An abundance mindset can help enable investors to make rational decisions rather than impulsive ones driven by fear. When investors have confidence in their long-term investing strategy, they are free to live out their purpose and create a fulfilling life for themselves and others.
Financial Literacy as a Catalyst for Positive Global Change
Financial literacy can transcend the individual investor and has the power to create change in the world. By investing in free markets and fostering global entrepreneurship, investors can support innovation and wealth creation on a global scale.2
Free markets rely on educated investors who understand the principles of prudent investing. Through financial education programs, investors can learn how to be prudent and disciplined with their money and invest for global prosperity. Moreover, investors empowered with financial knowledge are more likely to contribute to causes they care about, using their wealth not just for personal gain but for making the world a better place.2
Start Here
With information readily available at the click of a button, 24/7 news stations, and a constant barrage of information to scroll through on social media, it can be overwhelming to know where to begin or how to decipher fact from fiction when it comes to investing. At Matson Money, we are helping investors take control of their financial future through ongoing education and training. Investors work with an independent advisor coach and can participate in ongoing investor training programs. Interested in learning more about the science of investing? Join us for the American Dream Experience®, our two-day educational event where you can create your True Purpose for Money® and discover the science of investing.
Financial literacy is foundational to a prudent, long-term investing strategy. It can shift the focus from speculation to discipline, from scarcity to abundance, and from individual gain to global prosperity. By asking the right questions and understanding prudent investment principles, investors can have confidence in their long-term financial goals.
Disclosure:
This content is based on the views, opinions, beliefs, or viewpoints of Matson Money, Inc. This content is not to be considered investment advice and is not to be relied upon as the basis for entering into any transaction or advisory relationship or making any investment decision.
All of Matson Money’s advisory services are marketed almost exclusively by either Solicitors or Co-Advisors. Both Co-Advisors and Solicitors are independent contractors, not employees or agents of Matson.
Other financial organizations may analyze investments and take a different approach to investing than that of Matson Money. All investing involves risks and costs. No investment strategy (including asset allocation and diversification strategies) can ensure peace of mind, guarantee profit, or protect against loss.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS
Sources:
1. Turner, Terry. 47+ Fascinating Financial Literacy Statistics in 2023. Annuity.org. Published July 30, 2024. Retrieved 12 November 2024 from https://www.annuity.org/financial-literacy/financial-literacy-statistics/.
2. Matson, M. (2013). Main street money: How to outwit, outsmart & out invest the wall street bullies. McGriff Pub.
3. Modern Portfolio Theory. Markowitz, Harry. Portfolio Selection: Efficient Diversification of Investments. New York. Wiley. 1959. Print.
