Stewart Aldcroft: The Best Way to Educate Investors

The Best Way to Educate Investors

By Stewart Aldcroft

One of the key tenets of the role of a regulator is to provide a platform that ensures prospective investors are properly “educated” about the products they buy. This, in Hong Kong, has led to the creation of the Investor Education Centre, a website devoted to providing a vast amount of information on just about any investment proposition available in the market today.

Increasingly, financial services companies are also devoting significant resources to “educating” their prospective clients. They spend a considerable sum on training and educating their client-facing staff to ensure they are up to par when meeting clients to talk about investing money. This does, of course, make a lot of sense, as no one is going to buy a financial product from someone who doesn’t understand what they are talking about!

Over the last 20 years or so in Asia, fund management companies have undertaken many different activities to inform, educate and sell their products to the general public. There was a time when the Saturday morning public seminar in hotels was popular. Sometimes it might be a weekday evening. Sundays were also popular for holding events that allowed the whole family to participate with play areas for the kids, while the parents sat and listened to investment experts talking about stock markets. More recently, “webinars” enable a potentially greater audience to sit in the comfort of their homes or offices to listen to the opinions being expressed and gain a greater understanding of the products and services offered. There is, however, nothing quite like a one-on-one or “eyeball session” to get the first-hand knowledge craved for or to get across to a prospective client all the intricacies of an investment proposition.

While this is all well and good, the problem I see is that the brain is simply not switched on to receive this information! I have become somewhat cynical about the effectiveness of these efforts principally because, in my experience, most people don’t listen until they have to.

I’ve asked this question many times: “Before buying your mobile phone, did you attend training and education courses to understand how it works or what the device can be used for?” The answer every time is: “No, of course not. I just switched it on, and played around, until I knew what I was doing.”

The same can and, possibly, should be true about investing money. If you start off with a small amount, even as little as HK$10,000 – HK$25,000, and invest it into one or two mutual funds (or unit trusts) that you think might be quite good, you can start to build knowledge of the product and the service that comes with it.

Why would you want to do this?

It’s simple really. First, by starting small, you are not putting too much money at risk. You can put to work just enough to find out something about what you are doing. When your own money is being used, there is an “emotional transfer” taking place, which suggests you need to keep a close track on it. This will, in some respects, force you to follow what you are doing more closely.

Second, once started, whether from the fund company or an advisor, you will start to receive regular information about stock markets, information about other similar investment choices, and more specifically, advice and guidance of the market trends that are so important for getting the best results. Reading these will help you to understand what’s going on.

Next, as you start to build your own understanding of these opportunities, more confidence will develop. If markets go up, should you buy more or sell? If markets go down, is that a selling signal or a buying opportunity?

So long as what you have used to get started is not a significant proportion of your wealth, it is your “play money” with which to self-educate on the use of mutual funds. Of course, there is no guarantee markets won’t go down; that’s what happens in the volatile climate of investing. But they can and often do go up as well, so there is just as good a chance you will make money while receiving an investment education. BM