Financial Ingredient Labels

I often compare financial issues to food, mainly because personal finance is loaded with jargon that only furthers a person’s confusion. I will compare using riskier investments to having a tolerance for hot peppers. Or, a budget (spending plan) is often compared to a diet (nutrition plan). Or asset allocation just means recipe (I have a blog post on that “Demystifying Asset Allocation (Hint: It just means “recipe”)”.)

I clearly would’ve been a nutritionist had I not chosen to become a financial planner.

My previous blog post was about the volume and complexity of financial disclosure forms. I’m being a little contradictory in this post in that I want you to be able to understand what you’re getting into; I’m actually encouraging you to consider what goes into your portfolio just like I’d encourage you to consider what goes into your body.

When you go to the grocery store, you can purchase an apple without any packaging and without any ingredient label. It is one of the most healthful things you can eat, it’s simple, and inexpensive. Plus, you know what you’re getting.

As soon as you cross into processed food, you immediately venture into the unknown. You must pick up the package, and, if you’re at all concerned about what goes into your body, read the ingredients. But you have to know what you’re reading. If there are things you can’t identify as food, you may be safer to steer clear of it. The same is true of financial products; the simpler they are to understand, the more likely they are transparent and that you’ll know what you’re getting.

A few years ago I attended a seminar for a newly approved life insurance product. It had some impressive bells and whistles. Now, I’m optimistic by nature but skeptical by training, so I read over the fine print only to be more than a little disturbed about some of the potential tax consequences. When I asked the wholesaler about them, he kind of fluffed it off, like, “It’s unlikely that’ll ever happen.” Well, what if it did? I didn’t want to be the person who recommended something that caused someone MORE problems. I’ve steered clear of it ever since.

It is work to understand what you’re doing with your money, and it does take time. But isn’t your financial situation worth the time and effort? Read prospectuses, if you choose to invest, learn the verbage, ask questions, make your advisor explain things to you. YOU DON’T HAVE TO FEEL EMBARRASSED THAT YOU DON’T KNOW THESE THINGS!

It is my hope that you can educate yourself enough so that you feel confident and less vulnerable in the world of personal finance. Until that point, get the help and guidance you need from a trusted professional.

Photos courtesy of ClipArt