What does it take for the average person to reach financial independence?
A lot of things.
The willingness to work to save. An understanding of basic financial concepts, like asset allocation and diversification. An actionable financial plan. And the deferral of gratification, so your money has the opportunity to compound over a long period of time.
Yet these are all dependent on something even more vital: good information.
Good information reveals that higher levels of education generally lead to greater income.
It points out that you will never be rich until you live within your means, no matter how much you earn.
And – the pandemic notwithstanding – it demonstrates that life is getting better for most people in most places in most ways.
Unfortunately, most people don’t know where to find good information – and don’t always recognize it when they see it.
This is partly due to our public education system.
Americans graduate from high school without understanding compound interest, 401(k)s, adjustable-rate mortgages or why we even have a stock market.
Then they trundle off to college where their professors teach them that we live in an unfortunate economic system – called capitalism – that is based on greed, selfishness and exploitation.
Then they stumble into the world of social media – where every idiot in the world is in touch with every other idiot – and so-called “alternative media,” often a mishmash of partial truths, conspiracy theories and outright distortions.
It’s too late to fix your high school education, of course.
And there is no changing the minds of the Marxists and fellow travelers in academia.
But you can turn off social media right now. And perhaps you should.
Since the elections, I’ve been stunned by some of the columns, articles, blogs and YouTube videos forwarded to me by many of my college-educated and highly successful friends and business associates.
To say they are not getting “good information” is an understatement.
Personally, I refuse to read anything that is either unsourced or from an unknown source.
Why? For starters, the chance that some unknown individual in the dark recesses of the web has found “the real truth” is unlikely. (And if they have, it will soon be investigated and become common knowledge.)
If you regularly read unreliable or suspect opinions, when the subject comes up at a later time you probably won’t recall the source of your data.
And you don’t want to take the chance of repeating nonsense.
Bad information and pervasive bias are not restricted to “alternative” and social media, of course.
The New York Times, The Washington Post and other mainstream outlets also have algorithms that monetize anger, outrage and sensationalism.
Much of it is driven by today’s hyper-partisanship.
As a society we have become addicted to clickbait crack that treats politics like a blood sport.
In some quarters, politics seem to have supplanted religion, where folks don’t just talk about better and worse or right and wrong… but good and evil.
If you’re a progressive who believes that everyone who voted for Donald Trump is an irredeemable racist or a conservative who believes that Joe Biden wants to turn us into Venezuela, you are not getting good information.
This is also true in the financial arena and our own investment newsletter industry, where there is no shortage of puffery, hyperbole and scaremongering.
For example, I regularly receive letters from investors who insist that – since it’s based on fiat currency rather than gold – the U.S. economy is rotten to the core.
Our whole economic system is just a house of cards waiting for the breeze to blow.
Of course, folks have been saying this for 50 years now, ever since President Nixon closed the gold window on August 15, 1971.
Yet, as another year ticks by, they continue to repeat it like a mantra.
In this view, people like Milton Friedman, Warren Buffett and Jamie Dimon never understood our monetary system. And the gold bugs aren’t wrong, “just early.”
That’s one interpretation, I suppose.
Another is that if you’ve been on the wrong side of events for half a century, you’re dealing with unjustified claims, poor analysis or – to my point – bad information.
Where can you get good information?
If it’s news you’re looking for, stick to credible sources like Reuters, Bloomberg and The Wall Street Journal.
If it’s a more accurate worldview, try OurWorldInData.org and recent books by Steven Pinker, Matt Ridley and Johan Norberg.
Remember, anyone can make an economic, financial, political, religious or scientific claim.
But is it true? We’re seldom in a position to investigate the facts ourselves.
But, in my experience, it’s better to be skeptical about something that is true than to be credulous about something that isn’t.
When in doubt, consider the methods of my friend Michael Shermer, founder of Skeptic magazine and host of The Michael Shermer Show, one of the best and most informative podcasts on the web.
He suggests that you run various claims through his Baloney Detection Kit. (You can find that here.)
In short, it’s tough to make good investments with bad information.
And there’s an awful lot of it out there.
Good investing,
Alex
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