Today at TILE we talked about the financial concepts that have unexpectedly made their way into the everyday thinking of the TILE Team. I asked the staff these questions: By spending more time around financial concepts and terms, did finance become less scary to you? More interesting? More important? Are you more conscious of certain behaviors? What was a big “Aha!” moment for you over the course of the last few weeks or months? Here’s what they said:
“Portfolio diversification matters… now that I understand it a little better.” The key message is that investing is not an “all or nothing” sport. Being a good investor doesn’t mean you have to be an expert stock picker or an expert market commentator. Rather, by taking a “spread it evenly” approach with your investments across multiple dimensions, it is possible to meet all of your investment objectives – including your preferred investment returns, personal likes/dislikes, or making socially responsible decisions. Most important, objectives and priorities differ from person to person, and that is a good thing because portfolios – like individual preferences – are very personal. For example, some people eat meat while others are vegetarians. Both have the same objective of fueling their bodies, yet what they choose to eat, when they choose to do it, and the cost associated with it all differ. And that’s okay.
“Futures and options are real… not just something I saw in Trading Places or Wall Street (the movie).” Most everyone at the office admitted that futures and options seemed really abstract and even meaningless (even up until a few weeks ago). Some even thought they had no real purpose other than as a means for bankers to make money. Well, that changed recently when Florida’s record low temperatures made front-page news. The freezing in the air led to concerns about orange crops freezing (and dying) in Florida. Would there be no orange juice this year? How expensive was it going to be? Why does Wall Street care about the weather in Florida? Basically, there are companies that are dependent on the cost of oranges (think Tropicana) and they budget costs for the year ahead. Often they buy futures as a “hedge” (meaning they would rather lock in a price today then be subject to the fluctuations in the future). So when a crop fails, does that mean their costs are going up? Does that mean their profits are going down? All of a sudden the connection was made between weather, oranges, the cost of orange juice, and how futures and options trade based on real world events. Talk about connect the dots!
“People act differently in real life than they do in simulations.” Earlier this year, the team started a friendly stock market competition using the MarketWatch Virtual Stock Exchange. While it helped bring terminology to life and some fun into the office, the takeaways weren’t who won or lost. Rather, people learned that playing with “imaginary” money is very different than investing your own portfolio – the bets are bigger and the time frame is shorter (think about how much more willing you would be to “bet the house” if you were gambling with Monopoly money). So, while trading simulators can be a fun way to learn, don’t mistake them for the real thing. There also seemed to be a consensus around investing in what you know and care about – there is more confidence, conviction, and understanding, which goes a long way. Maybe Mr. Buffet really is on to something?!
So what do these financial revelations by the TILE Team mean for the TILE Community? At the end of the day, it turns out that simply spending time around financial concepts can make a real difference in your confidence level as you talk about them with friends and family. Mastering the terminology, the excitement of learning new and empowering concepts, and just the desire to communicate more will all help you on your way to financial independence. TILE is here to help you make the connection between your financial life and your day-to-day life – and we look forward to hearing your own stories!
- Amy