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What in the world does wearing “Codfish with Boots On” have to do with financial illiteracy? More than you think. Read on. When a person unfamiliar with money suddenly gets a pile of it, the result can be a train wreck. A classic example is lotto winners. Many end up broke or even go bankrupt.
While this can often be a surprise to those who haven’t been in our business, many wealthy people don’t know a lot about money. Some years back, I worked as a vice president for the wealth management division of a bank in South Florida. We signed a new client, I will call Mr. Gotbucks, who had a huge pile of money. He did not come from money and grew up poor. As a young man, he started and managed a business which became phenomenally successful.
What is the difference between selling a put and buying a put? Or buying out-of-the-money call options? Or selling a covered call? If you’re in the brokerage business, then you had to suffer through a number of questions on options when you took your Series 7 (aka FINRA). Now you’ve forgotten most of it. This is a refresher.
There will be a correction in the equity markets. When? No one knows. Not Warren Buffet. Not Bill Gates. Not the SEC, the NYSE or any financial firm. But there will be one, and it could happen next month, next year, two years from now, or three or five or ten. Having spent more than forty years in the industry, I can tell you one thing for certain, bear markets tend to happen when you least expect them.
We should all have this problem. Then again, most of us do. A whopping sixty-seven percent of Americans have anxiety over money according to the findings of a recent poll issued by the American Psychiatric Association. Because the poll was taken between March 23rd – 25th, the findings appear paradoxical. 1 Although the economy is doing well, people report more anxiety over their finances than they did a year ago.