| Posted: 21 Oct 2010 08:27 PM PDT Two things are infinite; human stupidity and the universe, but I'm not sure about the former. --Albert Einstein Tenzing on Hillary and Hillary on Mount Everest is the height of heights; peeing through key hole of a glass door is the height of stupidity. Now, what's the height of financial stupidity…there's a not one but many…most of us continue to violate some basic and simple financial truths and make stupid financial choices. It is very amazing to see how people get sucked in by the financial traps set up the financial industry; banks, stock brokers, life insurance companies, wealth management firms continue to harness the financial stupidity of people to make money. Human stupidity is the other name of irrationality, self deception and willful ignorance and is the single biggest contributor to human suffering. Let's see some of the ways in which people act stupid to ruin their financially life: Examples of Financial Stupidity Real Estate is the best form of investment 1. Investing in property thinking that just because land is in short supply, property prices can only move skywards. 2. Buying a residential house just to save on rent without considering the opportunity cost of money. 3. Going for a home loan to save tax even if one has enough of spare money to invest forgetting that like tax, interest is a cost borne by the borrower. Investing means trading stocks/ mutual funds 4. Either going 100% in stocks or 100% in bank fixed deposits. 5. Indulging in 'market timing' or 'stock picking' ignoring the fact that more than 80% returns of an investment portfolio are determined by 'asset allocation'. 6. Investing in Mutual Funds solely on the basis of returns without considering the risk undertaken to earn those returns. 7. Investing in Mutual Funds based on short term returns and / or dividend declaration. 8. Investing in IPOs by borrowing money to make listing gains. 9. Investing in PMS considering it to be a wealth management product not understanding that it is a high cost 'Portfolio Mismanagement Scheme'. 10. Getting lured by the fancy names of financial products. 11. Having an over-diversified investment portfolio with too many stocks/mutual funds leading to unnecessary duplication. 12. Buying jewellery for investing in gold instead of investing through gold ETFs. Insurance is a tax savings and investment tool 13. Investing in life insurance not knowing that it can be lethal for financial health. 14. Not buying adequate insurance coverage. 15. Investing in life insurance policies from LIC thinking that money is safe. 16. Buying life insurance just to favor a relative, family friend or a neighbor. 17. Mistaking insurance agents––peddling life insurance––for financial advisors. 18. Buying / investing in multiple insurance policies. 19. Falling for guaranteed returns schemes. Enjoy now, pay later 20. Considering fuel as the only cost of running a vehicle. 21. Buying /renting an expensive/unaffordable house by overstretching the finances. 22. Falling for zero interest rate schemes forgetting that processing charges is also a cost. 23. Spending to gain more points on loyalty cards and credit cards. 24. Not thinking twice before buying an expensive car or the latest gizmo, just to impress friends, relatives and neighbors. 25. Handing over a tip to a waiter even if not satisfied with the service…just to avoid the embarrassment. 26. Borrowing to finance a depreciating asset while own money is lying idle in bank accounts. 27. Borrowing money based on quoted 'flat rates of interest', not understanding that actual cost of borrowing is 2 to 3 times that of flat interest rates. 28. Choosing complexity over simplicity by mindlessly acquiring multiple credit cards, opening multiple bank accounts, investing in multiple mutual funds, buying multiple insurance policies. 29. Taking a casual approach towards managing money which has been earned the hard way, not understanding that managing money is as important as earning it. Put differently, working hard for money but not allowing the money to work hard. Taxing the brains 30. At last, the height of financial stupidity: Standing in long queues to file tax return on the last date. Is there any other financial stupidity I have left out? How do you handle your money? Judge yourself whether you're a financially intelligent or a financial idiot? The only way to comprehend what mathematicians mean by infinity is to contemplate the extent of human stupidity. --Voltaire courtesy : Money Quest |
Friday, October 22, 2010
Height of Financial Stupidity
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