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This chapter is from the book

Shared Ignorance

If Lorraine’s story didn’t make you cautious about trusting another person with your money, maybe this one will show you that you are part of a large club of people who are all in the dark about handling their money.

A couple years ago, I got a call from a 25-year-old who had just graduated from business school. He wanted to know the names of good index mutual funds and where to find them. In Chapter 13, “Index Funds: Get What You Pay For,” I tell you more about these funds because they are an excellent, and easy, investment choice. But for now, I merely want you to focus on this 25-year-old business school graduate.

He’d learned in business school that an index fund was a smart way to invest. But that was it. He still had no idea how to put the concept to work. So he called me for advice.

“Where do I find the best index fund, and how much money do I need to get started?” he asked.

I ran his question in my column, along with tips for him, and it caused quite a stir among my readers. Because his question was so elementary, some of my readers were sure that either the question was a phony or the young man had attended a rotten university.

Neither was true. And I tell you the story now, as I told it then, for one reason: A person can be educated in business, run a business, be brilliant in math, and read the business pages in newspapers, and still lack practical tools for investing, such as where to find a good mutual fund.

So before you turn over your investing decisions to a friend or spouse, think twice about your own capabilities. As a columnist, I constantly hear from perfectly capable people with valid questions. Still, they believe they are unusually ignorant. They almost always start their calls to me with a confession: “I don’t know what I’m doing.” Many assume they lack some innate ability. But it just isn’t true. The language of the financial world simply makes people feel incompetent, and the stock market unsettles people because it appears to work in mysterious ways.

Yet you should know that few people have an edge over you. A stunning number of multimillionaires and successful businessmen ask me to review their investments because they aren’t sure whether their broker has led them astray.

Keep this in mind: The person you think is so advanced compared to you might simply appear more confident or more educated. He or she might simply be more willing to jump into the task of investing money. But you can do it, too—and maybe better than a financial adviser—if you merely follow the steps I lay out for you.

If you learned addition, subtraction, multiplication, and division in grade school, you have more math than you will probably need. And the Internet calculators I suggest will do the work for you. Eventually, you will be able to eye your 401(k) account or an IRA and quickly pick mutual funds with the ease you would in following a recipe. And you will feel comfortable that you won’t live like a pauper now or when you retire.

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