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Financial IQ – Six Ways to Improve It

By David Craik on June 25, 2022

Reading Time: 3 minutes

To get the most out of your money when you invest or save, you need to improve your Financial IQ. But this isn’t about knowing all the capitals of Latin American countries or the first 10 people to scale Everest. You need to understand shares and bonds and how rising interest rates impact your stock portfolio. You must be aware of savings and how to avoid being bamboozled by investment jargon.  Here are Six ways you can improve your Financial IQ

Key Takeaways

You need to build up your Financial IQ

Read and listen to advice

Assess your own financial situation

Get into the game


Read, Read and Read again

There are countless tomes on how, why and where to invest. Just click on Amazon or visit your local bookshop to digest the learnings of investment gurus. Cracking titles include ‘The Intelligent Investor’ by Benjamin Graham which provides advice on how to develop long-term investment strategies. Another is the ‘University of Berkshire Hathaway’ by Warren Buffett in which he discusses his investment lessons and strategies.

If you need a more basic introduction to the world of finance then head for titles such as ‘Investing for Dummies’ by Tony Levene. It offers tips including how to minimise investment risks.

Listen, Listen and Keep Listening

Plug in your headphones and log on to an investment podcast. Find those hosted by experienced investors regaling their experiences and interviewing peers. Examples include The Meb Faber Show where Faber, the co-founder and chief investment officer of Cambria Investment Management discusses how investors can make money out of equity and bonds. Another good listen is ‘Word on the Street’ from Barclays UK looking at how events such as interest rate changes are hitting markets.

Become a student again

Financial IQ requires developing your mindWe have probably all seen those Get Rich Quick type adverts on YouTube. They encourage us to sign up to some spangly investment course which will make us millionaires in a day. It is best to ignore these and focus instead on more traditional seats of learning such as Colleges and Universities to help improve your financial and investment understanding. An example is an online course on Investment and Portfolio Management Specialization offered by Rice University which delves into areas such as portfolio selection and behavioural biases. In the UK you could enroll on the Investment and Portfolio Management course from the Open University. It covers the fields of investment, strategies for bonds and equities, ethical investments and derivatives.

Talk to the Experts

Go to an investment conference such as The London Investor Show where you can listen to talks, engage in question-and-answer sessions and pick experts brains over coffee. Arrange a meeting with a financial adviser, or investment professional to build up your knowledge and find the right strategy to suit your behaviour and needs.  

Talk to your friends or family. What good and bad experiences can they pass on to you? Investor community sites are also much in vogue such as Reddit day trading where you can discuss hot stock tips or those to avoid. But as with any social media site take a large amount of what you read here with a pinch of salt!

Assess Where You Stand Financially

You are never going to improve your Financial IQ if you have no idea what is happening with your finances. Take time to assess exactly what is coming into your bank account, what is going out and why. Look at whether you have got the best savings rate and what pension entitlements you have in place.

Monitor the performance of the shares or passive investments that you hold or the state of your ISA. This is all invaluable in helping you develop a greater financial understanding. Not just of the market this time, but yourself.

Put the Theory into Practice

Often the best way to learn is to stop sitting on the sidelines and get into the game. Invest in a passive index linked ETF, or an investment trust in an industry sector that you know well. Look at setting up a stocks and shares ISA or start buying individual shares yourself.

Only by exposing yourself to the financial world and carrying out your own fundamental or even technical analysis will you truly build up enough financial IQ to help you make the money you want.

Conclusion

Learn from your trading mistakes, look for different patterns in your investing strategies, what worked well, what did not and what you would do differently next time. Be cautious of course and do not go throwing huge amounts of sums around when you start. Build up gradually, look for passive investing wins rather than going straight for the active approach.

You will also become more aware of another crucial part of your Financial IQ. That is your risk and tolerance level and how you behave as an investor. How do you react in tough situations when the pressure is on to sell and good times when the pressure is on to buy. Happy learning!

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David Craik

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