The Dow Jones Industrial closed Friday at 17,400 following the Brexit, and most are left wondering why their 401(k) balances are affected by decentralization in Europe. Some will focus on this being a temporary blip on the radar and others will wonder if it’s a sign of a deeper drop to come. Either way illustrates the lack of basic financial understanding the investing public possesses that my 10 year old daughter learned in less than 2 hours. In fact, my daughter’s simple but logical understanding of economics would have compelled her to have sold the market at least 2 months ago, if not last November.
Playing games with your kids pays off
Last weekend my family spent Saturday afternoon playing Cash Flow, a financial educational game by bestselling author Robert Kiyosaki. Cash Flow helps you understand when to buy and sell financial assets, and it’s focused on helping you learn how to gain financial freedom or as Kiyosaki calls it, “getting out of the Rat Race”. The goal is to gather assets that produce passive income that will grow larger than your monthly expenses. Along the way there are opportunities to buy and sell assets such as stocks, gold, and real estate. You are strategically looking for times to sell your asset for a significant gain in order to purchase a higher income producing asset in the future. In each one of the opportunities there is a trading range listed and its current price from which to buy or sell. This basic understanding of looking at the trading range is why my daughter would have never been investing in the stock market over the last several months. If you would have looked at the 52 week trading range for the DOW before its 600 point decline it would have showed it trading between 15,370 – 18,167. It wouldn’t take a PhD in economics to determine Friday’s open of 18,008 was at the peak of the market.
Change your perspective
The Brexit isn’t the problem, we are. If you were tracking the trading range of the market and noticed it trading at the peak you probably wouldn’t be discussing the Brexit with disdain for its negative affect on your accounts. Most likely you would be one of those looking for an opportunity to buy something that might be drastically lower than its trading range. My assumption is that wouldn’t be land in Texas with all the social media hype about a potential Texit.
The sad truth is that we are not encouraged to get involved in our finances and most report spending more time each year selecting a restaurant for their anniversary or buying their next tabletthan my daughter did gaining this financial wisdom. Shawn Tully, a writer for Fortune once said: “If you understand what is happening, you will know what to do”. If you haven’t been tracking the trading ranges of the investments you are making, start now! The age old adage of investing is and will always be, “Buy low, Sell high”. Apply this simple concept and you will have much more success in the future.
Financial freedom isn’t a rainbow colored unicorn
My 6 year old loves unicorns and most of all rainbow colored unicorns. She asks me frequently when I will buy her one of these to be the family pet. Unfortunately for her rainbow colored unicorns do not exist outside of animation but financial freedom does. This financial freedom can be found by owning assets that produce passive income that exceed your monthly expenses. Here are two easy formulas you can apply in your pursuit.
Learning = Knowledge Action = Understanding
Have you begun working on strategies to get out of the Rat Race If you are ready to gain an enlightened understanding about your money to make better financial decisions then why not begin today?