Preaching to the converted - this ancient idiom captures an extremely prevalent and profound truth. It refers to giving a moral sermon to those who are already in the church, and thus presumably already following the religion that is being preached. By definition, those who should be listening are absent. This is shockingly similar to certain aspects of financial journalism and information in all its forms.
TUTORIAL: Investing 101
The classic irony is that this very article will be read by the converted only. So my request to all readers is to spread the word to anyone you know who could be in need of honest advice, and who can be directed towards the financial media. (Find simple and easy instructions on how to introduce beginners to the stock market, read Teach Your Child About Investing.)
Who Are the Unconverted, and Why?
The problem group referred to here are all of those who do not know what they need to know about their investments. In particular, these are inexperienced investors who could easily learn the basics which would prevent them from entry-level rip-offs, such as common or garden misselling, unsuitable or inefficient investments and getting into the market at a hideously risky all-time high. (For more read an easy to follow Stock Basics Tutorial.)
Inexperienced investors are to be found almost everywhere. In fact, one could argue that most people do not really know how investments work. Only those who have made a concerted effort to understand them, through reading and researching, as well as working actively themselves with the assets, or together with their brokers, can legitimately be considered as experienced. This group constitutes only a fraction of the population.
Although the "unconverted" can, in principle, include relatively experienced investors who can still get taken for a ride with complex products or by particularly unethical sellers, they are better able to take care of themselves. At least they generally know that they need to be careful and check things out. However, it should be emphasised that even highly educated people who have had money invested for decades, can be pitifully ignorant in various respects. They too can and do get ripped off.
No amount of preaching can prevent the ways of the wicked. Nonetheless, the truly vulnerable are the trusting masses who know that sharks are out there somewhere, but believe their own broker is a real gent who will look after them. Likewise, a recent widow or indeed anyone who has suddenly come into money, is a target for the predators who are often a lot closer to home than you think. (Make sure you're getting the best service by staying informed and involved, see Evaluating Your Stock Broker.)
Where Preaching is Still Needed
Almost everyone has heard of the disastrous stock market crash of 1929 and the Great Depression. This means that almost everyone knows that stock markets go up and down, sometimes alarmingly. But this does not mean that the same "almost everyone" has the faintest idea what constitutes a good portfolio, the difference between stocks and bonds, how firms really manage funds and so on.
What's Wrong with the System?
In order to ensure that people shop around and read up before they buy, the nature of financial education needs to change from passive to active, from self-selective to pervasive, and from frequently ineffectual to seriously informative warnings.
There is undoubtedly a desire on the part of the industry not to inform people too well. It is intrinsic to the nature of the investment industry that it is easier to make money out of inexperienced and uninformed investors. After all, they are the prime customers for excessively risky or cost-laden products which make sellers a lot of money. (Many investors overestimate their level of financial knowledge Do You Understand Investment Risk?)
At present, the situation remains highly unsatisfactory. Although there is no shortage of literature and information, unless you are really looking for it, you may not find it. And if you find it, you may not really get the message and act on it. Furthermore, there is a big difference between having a vague idea and really understanding the potential opportunities and risks.
What Resources are Available?
The range is extensive, even overwhelming. Thus, people may need to be guided in the right direction. Depending on the level of education and motivation, everyone should read a basic book or website on investment, so that they understand the truly crucial issues of asset allocation, relative levels of risk of the various asset classes, the nature of indexes and how they can or cannot be beaten. It is also essential to know about the conflicts of interest that are so prevalent in the industry, and about the various types of mismanagement that occur.
Furthermore, on an ongoing basis, investors of all kinds need to keep themselves as informed as possible on developments in the local and world economy. They need to be reasonably aware of what types of investment are becoming more or less attractive over time, so that they can ensure that their portfolios remain suitable and optimal. This is best achieved though the right blend of internet sites, newspapers, TV and radio and magazines. There are not only specialised resources devoted entirely to investment, but many that deal with business in general, do have an investment section. (Want advice from some of the most successful investors of all time? Check out our reading list in Ten Books Every Investor Should Read, and Top 5 Books For Young Investors.)
Somehow, anyone investing money needs to be informed properly about where the money is going and what is likely to happen with it. What can really be gained or lost, with what probability - and what alternatives are there. And this needs to be done in a way that really works, so that people are not sold assets that they would avoid, if only they were sufficiently informed. Sadly, achieving this is a tall order, as explained above. The really effective communication mechanisms are just not there in all the right places, and that means way beyond the borders of the financial industry itself. Within the industry, there are too many incentives not to inform "too much."
The answer surely lies in extending the educational processes to which "almost all" are subject to the main financial issues. The broad masses need to take "Investment 101", truly understand it, and apply it consistently to their own money. This could be done simply and painlessly at high school. Financial basics and news need to be conveyed with missionary zeal! The "financial heathens" are in need of conversion, for their own good.
For some, reading or getting informed on their own is a problem of time and effort, but the material could be included in classes at school, university and various forms of continuing education. Similarly, banks and brokers can be encouraged or even compelled to provide some form of educational function to their clients. In principle, there could be check lists of basic issues on which clients must be duly informed, before they invest.
As for the already converted, they can really make and active effort with their friends and acquaintances. Whenever the opportunity arises, they can talk to them about money and investment and recommend or lend various resources. There is no need for there to be a taboo on the subject of money; indeed, most people will be grateful for the input, if not right away, certainly over time. (Find out the different types of stock, how the markets work and all about the bulls and bears, in Stock Basics.)
One of the most serious problems facing the general investing public is that that they fail to learn enough about investments until/unless they go wrong. In other words, financial journalism and writing in the broadest sense are preaching to the converted. This situation seems set to continue unless the nature and pervasiveness with which essential base-line data is conveyed, changes radically. The necessary information is there in abundance, but the majority of those who need it most just don't get to find out what they ought to know.