Finance 1. Not being honest about your limits You’ve probably heard about the ancient wisdom of ‘know thyself.’ It’s one of the most important financial lessons out there. Failure to understand the limits of either your knowledge (what you know, what you don’t know and how to tell the difference) or your emotions (how much risk you’re willing to take, how much of a loss you’re willing to accept and how you’re likely to react if you’re forced to accept one) can be a sure path to money trouble. When times are good and the market is rolling along, it’s easy to become caught up in the optimism and overlook our reaction to risk and loss. Similarly, when everyone around us is making money in a hot new idea with which we’re not familiar (AI startups, marijuana stocks, Chinese equities, hedge funds or whatever other idea the market is currently infatuated with), it’s easy to forget that such investments might be beyond our level of investment knowledge or acumen. Figuring out these limits isn’t hard – start by asking yourself some basic questions regarding what you know about basic financial products such as stocks and bonds, and basic financial strategies such as RRSPs, TFSAs and life insurance. Then, do the same for your risk tolerance: how does the idea of losing money on a given investment make you feel? Do you enjoy the ‘thrill’ of investing? Or does news of a stock market downturn make you anxious or nervous? These are very basic questions, but your honest answers will give you a clue about how you might react to market ups and downs, and the kinds of situations that are beyond your level of financial know-how. That self-knowledge can help you avoid difficult financial situations before you get into them. 2. Not knowing what you’re getting into Your sixth-grade teacher explained the consequences of not doing your homework. Your teacher was on to something and could very well have been speaking about your finances as much as your multiplication tables. The failure to do your homework before you make a financial decision – to make a purchase or investment based on intuition or impulse without shopping around or doing some research first – is a sure way to destroy wealth. Behind every sound investment is a complex decision, one that needs to be researched, analyzed and carefully considered for its potential to make a profit and fit into your overall portfolio. The same can be said for most major purchases and how they might fit into your overall life goals. If you don’t know what you’re getting into before you make these decisions – if you haven’t looked at the potential, the risks, the factors that could affect your decision one way or the other – you turn every financial decision into a guess or a gamble. Not good. For some, doing the homework means digging into annual reports, seeking out other opinions, shopping around for the best deals and doing online research before making major purchases. For others, it means hiring investment advisors, accountants and other professionals who can do the work for them. Either way, being deliberate about your decisions before you make them is the best way to build and preserve your wealth over the long term. CSANews | SUMMER 2024 | 23
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