“In 2017 Northwestern Mutual study, 82% of Americans felt they were somewhere or not at all confident in their understanding of investing” Preparing Clients for a Successful Wealth Transfer. Financial literacy is not a subject matter most of us are taught in school. So it can be comprehensible why there is such a high percentage of Americans who do not feel confident in their knowledge of investing. Let’s found out more about the issues that arise with financial illiteracy and some ways to overcome them.
Three issues that may arise from financial illiteracy:
Lack of understanding taxes and choosing the right accountant professional. Many investors may not understand or be aware of certain tax implications or benefits with financial investments, especially those who may have inherited wealth from their parents. I strongly suggest finding an experienced tax accountant to assist you. Especially a professional who keeps up with the continual changes in the tax laws, as we may have seen this year.
When searching for a professional accountant ask them, “how long they have been in business?; what experience do they in working with clients who own (investment, i.e multifamily, stocks, etc)?; can they provide referrals?; how do they keep up with the changes in the laws?”
Lack of knowledge in buying and selling financial investments. As noted above, 82% of Americans felt they were somewhere or not at all confident in their understanding of investing. In most cases, this leads to people shying away from financial investments, people buying the wrong investments, and/or losing an investment from erroneous actions. Invest time and money into reading books or taking investment courses to learn strategies for buying or selling investments profitably. Additionally, understanding the market in which you are investing in by reading business/ investments news and following influential leaders in the industry will give you the ability to make better decisions.
No plan for managing and allocating financial resources to meet goals. Build a foundation with experience and expertise in the areas of the investment portfolio to properly manage and allocate resources adequately. If your an inheritor, work with the benefactor (owner of a portfolio) to understand how to manage the portfolio efficiently before the transfer of wealth occurs. This allows the inheritor to have a solid plan after the benefactor has left and continue to meet the goals and objectives of the investment business(s).
For others, request to partner or receive advice from an experienced investor on your first deal, depending on size and risk to get a better understanding of the financial resources needed to invest and the management requirements to meet the goals and objectives of the investment. Some of the worst mistakes I have seen within the real estate industry are new investors who jump into the business with no knowledge of the financial resources needed to purchase or manage flips and long-term investments. They get into a deal with not enough money to cover repairs and/or do not manage the property efficiently which causes them to lose money and/or the asset.
Financial illiteracy can lead to mismanaging investments and losing assets. If you can build a strong foundation with education, working with benefactors or advisors working in the industry to develop a solid investment plan, the goals and objectives of any investment portfolio can be achieved.
Bureau Labor Statistics for market research.
Wall Street Journal for news updates on investment business(s) and industries.
IRS Newsroom for updates with new tax laws and regulations.
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