How to start investing—responsibly | Thomas Kehl | TEDxHSGSalon

Summary

The speaker contrasts their father's era of limited financial knowledge and costly investment advice with today's accessibility of financial education and low-cost investment tools. They emphasize the importance of self-education, skepticism towards financial offers, and learning from others' experiences to manage personal finances wisely. The speaker encourages embracing DIY money management, starting small, and applying knowledge to avoid common financial pitfalls.

Takeaways

• 💼 The speaker's father's first encounter with personal finance and investing was at 50, after which he made the mistake of investing in mutual funds with borrowed money, leading to significant losses.
• 🌐 The accessibility of the stock market for wealth creation is not limited to the ultra-wealthy; ordinary people can also participate and grow their wealth.
• 💡 The importance of financial education is highlighted, as the lack of it can lead to trusting faulty advice and making poor financial decisions.
• 📈 The speaker emphasizes that the best money manager is often the individual themselves, by making simple but smart financial decisions.
• 📚 A significant shift has occurred from relying on expensive seminars and gurus to freely available online resources and communities for financial education.
• 🌟 The Covid pandemic has catalyzed a new generation of young investors who are taking control of their personal finances and investing during market downturns.
• 💭 The speaker suggests that by following money trails and being skeptical of offers that seem too good to be true, individuals can avoid falling into financial traps.
• 🏦 The cost of financial products and services has significantly decreased, making it easier for individuals to start investing with small budgets.
• 🚀 The rise of ETFs and other low-cost investment vehicles has made market participation more accessible and cost-effective for individual investors.
• 💪 Encouragement is given to learn from mistakes in finance, as it is a natural part of the learning process and applying knowledge is key to improving financial literacy.

Q & A

What was the speaker's father's first experience with personal finance and investing?

The speaker's father's first experience with personal finance and investing was at the age of 50 when he attended an expensive money guru seminar and learned about investing in mutual funds.

Why did the speaker's father decide to invest in mutual funds?

The speaker's father decided to invest in mutual funds after being told at a seminar that even as a simple employee, he could become rich by investing in them, despite the high costs and often lacking promise of superior returns.

What financial disaster occurred due to the speaker's father's investment decision?

The speaker's father faced a financial disaster when he borrowed money against his parents' house to invest in mutual funds, and shortly after, the dot-com market bubble burst, causing his funds to lose value and forcing him to sell at a loss.

What questions does the speaker suggest people should ask themselves about their finances?

The speaker suggests people should ask themselves questions like: 'Where do I start with my finances?', 'Who's a trustworthy advisor?', 'How do I not lose money on the stock market?', 'How do I make my savings grow to close my pension gap?', 'How do I not mess it up?', and 'Is it even possible?'

How did the speaker's experience during the 2008 financial crisis differ from their experience during the Covid pandemic?

During the 2008 financial crisis, the speaker was watching the market crash on TV without any support or knowledge of how to behave in such a situation. In contrast, during the Covid pandemic, the speaker had a community and was actively producing content to educate and support others, and young people were seizing the opportunity to invest during the market drop.

What significant shift has occurred between the speaker's father's era and the post-Covid world regarding personal finance?

The significant shift is the rise of do-it-yourself money managers, where information is freely available, replacing costly seminars, and communities have stepped up where gurus once stood.

How has the accessibility of financial knowledge changed according to the speaker?

According to the speaker, financial knowledge is now freely accessible through platforms like YouTube, Spotify, and various educational content, making it easier for anyone to learn about finance.

What advice does the speaker give on how to avoid making financial mistakes?

The speaker advises to learn the basics, use available tools to get information, follow the money to unveil conflicts of interest, exercise skepticism, especially with offers that seem too good to be true, and not be afraid of making mistakes, applying what you've learned and starting with smaller budgets if needed.

Why does the speaker believe that the best money manager is the individual themselves?

The speaker believes that the best money manager is the individual because they can learn how to manage their finances themselves by following simple but smart decisions, utilizing the vast resources, abundant knowledge, and supportive communities available today.

What is the role of communities and platforms like Reddit, YouTube, and Discord in personal finance education according to the speaker?

According to the speaker, communities and platforms like Reddit, YouTube, and Discord play a crucial role in personal finance education by providing a space for sharing stories, experience reports, and case studies, allowing individuals to learn from others' mistakes and successes.

Outlines

00:00

💼 The Journey from Unawareness to Financial Literacy

The speaker shares a personal narrative about their father's late introduction to personal finance and investing, which led to significant financial losses due to a lack of knowledge and experience. This story serves as a cautionary tale, highlighting the importance of financial education. The speaker emphasizes that with the right information and tools, individuals can become effective managers of their own finances, avoiding the pitfalls that their father faced. The narrative also touches on the transformative impact of financial crises, using the 2008 financial crisis as an example of how the lack of community and accessible information can exacerbate the situation.

05:02

🌐 The Rise of DIY Money Managers in the Digital Age

The speaker contrasts the financial landscape of their father's era with the current environment, where information and community support are readily available. They discuss the democratization of financial knowledge through platforms like YouTube and the emergence of cost-efficient financial products like ETFs. The speaker argues that the accessibility of financial education and the lowering of investment barriers have empowered a new generation of young investors to take control of their financial futures. They also highlight the importance of learning from others' experiences and the value of applied knowledge in managing personal finances effectively.

10:04

💡 Navigating Finances with Skepticism and Caution

In the final paragraph, the speaker offers practical advice on how to manage personal finances without making costly mistakes. They emphasize the importance of understanding conflicts of interest in the financial world and the need for skepticism when faced with seemingly advantageous offers. The speaker warns against the allure of easy access to debt and the potential pitfalls of high-frequency trading. They encourage learning from mistakes and starting small when applying financial knowledge to minimize risk. The speaker concludes by reinforcing the idea that taking control of one's personal finances is a powerful decision, supported by the resources and communities available today.

Keywords

💡Personal Finance

Personal finance refers to the management of an individual's financial resources, including budgeting, saving, investing, and planning for retirement. In the video, the speaker's father's lack of knowledge in personal finance led him to make poor investment decisions, such as borrowing money to invest in mutual funds without fully understanding the risks involved. The video emphasizes the importance of personal finance education to avoid such pitfalls.

💡Stock Market

The stock market is a platform where shares of publicly traded companies are bought and sold. It serves as a key avenue for wealth creation and investment. The speaker mentions that the stock market is accessible to ordinary people, not just multi-millionaires, and it plays a central role in the personal finance journey, as it offers opportunities for growth and diversification of investments.

💡Mutual Funds

Mutual funds are investment vehicles that pool money from many investors to invest in a diversified portfolio of stocks, bonds, or other assets. They are managed by professional fund managers. In the script, the father's investment in mutual funds is highlighted as an example of a costly financial product that did not deliver on its promise of superior returns, leading to significant losses.

💡Financial Education

Financial education encompasses the knowledge and skills needed to manage personal finances effectively. The video underscores the importance of financial education, suggesting that it can empower individuals to make informed decisions about their money, thus avoiding the mistakes made by the speaker's father who lacked such education.

💡Investing

Investing involves putting money into financial instruments or projects with the expectation of generating an income or profit. The video discusses investing as a means to grow wealth and close pension gaps, emphasizing the need for education on how to invest wisely in the stock market to beat inflation and avoid common pitfalls.

💡Diversification

Diversification is a risk management strategy that involves spreading investments across various financial instruments, industries, and other categories to reduce the impact of any single investment's poor performance. The speaker mentions diversification as a key learning for investing in the stock market, suggesting it as a way to mitigate risk.

💡Financial Advisor

A financial advisor is a professional who provides financial planning and advice on investment and financial matters. The video raises questions about the trustworthiness of financial advisors, suggesting that individuals should be cautious and discerning when seeking financial advice, as advisors may have conflicts of interest.

💡Conflicts of Interest

Conflicts of interest occur when a person or organization is involved in multiple interests, financial or otherwise, that could potentially corrupt the motivation. The script warns about the prevalence of conflicts of interest in the financial world, advising viewers to follow the money and question who benefits from financial advice or products.

💡Cost-Efficient Funds

Cost-efficient funds are investment funds that have low expenses and fees, making them an attractive option for investors looking to minimize costs. The video discusses the decline in costs of financial products, including the emergence of cost-efficient funds like ETFs, which have made investing more accessible and affordable.

💡ETFs (Exchange-Traded Funds)

ETFs are investment funds that are traded on stock exchanges, much like individual stocks. They offer a way to invest in a basket of assets and are known for their low costs and high liquidity. The speaker mentions ETFs as their favorite financial product, highlighting their benefits for private investors.

💡Financial Community

A financial community refers to a group of individuals who share common interests in financial matters and support each other in learning and decision-making. The video highlights the rise of financial communities, such as those found on Reddit, YouTube, and Discord, which have replaced costly seminars and provide a platform for sharing experiences and learning from others.

Highlights

The father's first encounter with personal finance and investing was at the age of 50, after attending an expensive seminar.

The father's decision to invest in mutual funds with borrowed money led to significant financial losses.

The importance of financial education is emphasized, as many people trust professionals and fall for faulty advice.

The speaker's personal experience during the 2008 financial crisis, without a community to support staying invested.

The Covid pandemic marked a turning point, with young people starting to invest and take control of their finances.

The rise of DIY money managers is attributed to the availability of free information and community support.

YouTube as a platform for educational content, with examples of popular finance-related videos.

The cost of financial products has fallen to a record low, making investment more accessible.

ETFs, initially for professional asset managers, have become a favorite financial product for private investors due to their low costs.

Learning from others' financial mistakes on platforms like Reddit, YouTube, and podcasts can help avoid similar errors.

The necessity of following the money to unveil conflicts of interest in the financial world.

The importance of skepticism in finance, especially when faced with offers that seem too advantageous.

The speaker advises not to be afraid of making mistakes in finance, as they are a part of learning and growth.

Reducing the budget of financial decisions can help mitigate fear and allow for practical learning experiences.

Taking control of personal finances is one of the most impactful decisions one can make, despite the risks involved.

The current financial landscape offers abundant resources, knowledge, and supportive communities to navigate wisely.

Transcripts

Transcriber: Nil Çelik Reviewer: Zsófia Herczeg

My father started his career as an engineer

in a time when the internet did not exist,

neither did the easy access to information on personal finance.

He was earning good money,

and when accidentally,

an insurance sales representative came across,

he signed a life insurance contract

in order to put some money aside for later.

His first encounter with personal finance and investing

was at the age of 50.

He discovered

that the stock market is accessible for ordinary people’s wealth creation,

and not only for the multi-millionaires.

He learned that at a very expensive money guru seminar,

where he was told that even as a simple employee,

he could become rich by investing in mutual funds,

financial products that were, and indeed are today,

very expensive and often lack the promise of delivering superior returns.

But they are one of the few opportunities

to invest in the stock market in a diversified way.

So he took a bold decision.

He borrowed money against his parents’ house

in order to invest it in mutual funds.

Shortly after, the dot-com market bubble burst.

His funds lost in value, and he decided to sell his parts.

We as a family, we needed money,

and he was lacking of education and experience on investing.

By selling his parts, he realized huge losses on his investment

financed with borrowed money.

Financially, it was a disaster,

but how could he have known or done it better?

His case is not an exceptional one.

Hundreds of thousands out there share the same financial biography.

Unaware of the availability of financial education,

we trust professionals and may fall for faulty advice.

This raises questions such as: Where do I start with my finances?

Who's a trustworthy advisor?

How do I not lose money on the stock market

but still can make my savings grow in order to close my pension gap?

How do I not mess it up?

And is that even possible?

Yes it is. I am convinced that the best money manager is you -

by following some very simple but smart decisions.

Let me first tell you why I’m convinced

that you can learn how to do your finances yourself, and then how.

Let’s start with the why?

Maybe a little question in the round:

Who’s investing right now or put some money on the stock market?

Okay.

Who was already invested in 2020?

Okay. That’s what I was - a bit expected.

And in 2008? Who was already invested in 2008?

Okay. Very little. Okay, okay.

2008 was my first financial crisis.

Financial crises typically come with negative consequences

such as job losses, monetary losses, and in some severe cases,

even home losses like in 2008.

But often, they mark a turning point changing the status quo permanently.

As I said, 2008 was my first financial crisis.

At that time, I was glued to the TV,

watching stock market reporters fearfully describing

how markets are crashing, and banks are going bankrupt.

I didn’t have any like-minded investors to whom I could talk,

nobody to share my fears

and no social community around me to support me in order to stay invested.

I had no blogs or websites at my knowledge

where I could have read how to behave in such a situation.

Twelve years later, another financial crisis struck,

but this time it was different.

I will tell you why.

The Covid pandemic made the stock markets implode again.

Up from February 2020,

the stocks prices started falling as sharply

as they never did before in history.

At that time, during my vacation on a Pacific island,

I produced a video on why investors should not panic

and why markets tend to recover after crashes.

I was also sharing what I will be doing in this particular situation

with my personal finances.

More than 400,000 people saw that video.

Back then, I had created, together with my founding partner,

a community of people interested in financial education.

Led by the pandemic crash, we started regular streaming

in order to engage closer with our community.

And here’s the thing that changed.

Unlike me in 2008,

instead of fearfully watching their TVs,

young people, like many here, started investing.

They seized the opportunity.

They took advantage of the 30% market drop

in order to buy stocks cheaper.

The crisis was the beginning of a new generation of young investors

who celebrated their stock market debut

and took over control of their personal finances.

So what was the shift

between my father’s time of personal finance, my father’s era,

and the post-Covid world?

It was the time

of the beginning of the rise of the do-it-yourself money managers.

Now information is freely available and had replaced costly seminars

and communities stepped up where gurus once stood.

When we started YouTube in 2016,

it was the second largest search engine with a huge demand on educational content.

Here are two examples.

On the left side, you see a video of a math teacher

explaining how to add fractions.

2.6 million people saw that video only in the German-speaking environment.

The second one is a video we produced on how the stock market works.

Two million people saw that video.

It was one out of 700 that we produced.

Today, you could be enjoying your favorite Spotify music playlist,

and with the simple switch within the same app,

start listening to a finance podcast from your favorite Wall Street journalist

or dive into an absolute beginner's guide.

Knowledge is now freely accessible so that you can deep dive into any topic.

Learning about finance was never as easy.

But knowledge is not everything.

The real value lies in applied knowledge.

I had shared today the story of my dad,

who did the mistake of investing in mutual funds with borrowed money.

I shared the story today

so that you are aware of the risks that are associated with that.

But so as I do, hundreds, thousands do it out there as well,

They share the stories, experience reports and case studies openly

on platforms like Reddit, YouTube, Discord,

blogs, podcasts, newsletters, you name it.

You can start following them.

You can now learn from the mistakes others have done

so that you can avoid them.

Another thing that has changed

is that cost of financial products fell to a record low.

In the past, my father had to go to a physical fund shop

in order to buy those funds

and had to pay a high, four-figure commission.

When I started investing, the costs were much lower,

but still at €20 per order.

Today, brokerage is almost free,

permitting you to start collecting experiences with a very tiny budget.

Let’s say 50 to 100 euros or francs per month.

But broker commissions is not the only thing that fell.

Also newly, very cost-efficient funds had arisen:

ETFs - for those who know me, my favorite financial product -

had been conceptualized,

not for us private investors,

but initially for professional asset managers.

This is usually a good sign,

as professionals tend not to fall for the shiny marketing bling bling,

but ask for high liquidity and low costs.

Participating in a financial market

had never been as accessible, transparent and social before.

So this is why I am convinced

that you can manage your finances by yourself.

Let’s now talk about the how: how not to mess it up.

Now that you have access, learn the basics,

use the aforementioned tools for yourself in order to get the information

you need for your particular situation.

You’re young, you have time,

you want to grow your wealth or close your pension gap.

Learn how to invest in a stock market in order to beat inflation.

Key learnings here are diversification of risk and keeping costs low.

You want to live in your own little house?

Then learn how to save for it and how to avoid the main financing traps.

You want to get out of that?

Learn how to create a sustainable budget so that you can refund the debt

and never need to borrow again.

The more you learn, the least you will mess it up.

Second, follow the money in order to unveil conflicts of interest

because they are everywhere in the financial world.

A financial advisor offering you a free insurance and investment check

has a high incentive of selling you a product

from the company he represents

regardless if you need it or not,

A bank advisor will not be able to advise you on the best ETF strategy,

as he can only advise you on the products the bank asks him to sell.

And the mortgage lender is disincentivised to tell you

if your real estate project might be too ambitious

for your financial situation.

Follow the money and ask who benefits?

Third, always exercise skepticism in finance,

especially when faced with an offer that seems too advantageous.

Did you ever hear of this revolutionary, once-in-a-lifetime opportunity

with no risk, high reward

and at the same time, inflation protected and tax free?

(Laughter)

This product does not exist outside the marketing world.

What if you hear of this fancy startup

based on blockchain that will democratize finance?

Democratizing in this context often means “making accessible to everyone.”

But start asking what has been made accessible.

“Buy now, pay later” startups, for example,

give you an easy access to consumer credits

right at the checkout of your favorite e-commerce website.

Did you ever shop something online and get the suggestion:

Do you want to pay your - what you’ve bought

in two or six or 12 months?

This is exactly this.

In my view, there is no need for an easy access to self indebtment

via consumer credits.

Others provide you trading without fees in a highly gamified app.

High frequency trading with risky products made accessible for everyone.

This usually only benefits the brokers

as more than 80% of retail traders lose money.

Brokers benefit the more you trade.

You risk losing more.

Don’t get me wrong.

Revolutions in finance benefit many in the emerging nations,

but in Europe, you should be wary

because often the innovation is not in the product

but in the marketing strategy making you buy something.

Finally, don’t be afraid of doing mistakes,

because if there's one guarantee,

then the one that you will not make it right at the first try.

This is usually true for any sports, for baby learning to walk,

and for your finances.

What makes the difference

is the application of knowledge or your personal experiences.

So start applying soon what you’ve learned,

and if you’re hesitating, just reduce the budget of your decision.

You're afraid of investing €5,000 in the stock market.

This is totally normal.

Just reduce the budget to, for example, a few hundred

or to a monthly savings plan in order to see what happens.

Taking over control of your personal finances

might be one of the most impactful decisions you could possibly take.

It comes at a risk, like many things in life.

Today’s landscape is shaped by vast resources, abundant knowledge

and supportive communities.

This is how you navigate wisely.

Thank you.

(Applause) (Cheering)