From time to time over the years I've been invited to talk to high-school
students about financial matters. I always enjoy this opportunity to learn from
them and - I hope - teach them some important things.
One question I
often ask is:
"Would you
rather invest like a rich person or a poor person?"
Of course they
always choose the first option.
I use this
question to introduce a couple of important concepts: Mutual funds versus
individual stocks and index funds versus actively managed ones. High-school
students, most of whom have little or no exposure to investments, have no
trouble comprehending that a wealthy investor will own thousands of stocks,
while a poor one might own only a few.
My point: Buy a
handful of individual stocks, and you will be following the poor person's
example. On the other hand, if you buy mutual funds - especially index funds - you
will be investing like the rich investor.
As it turns
out, the divide between poor investors and rich ones is deeper than I had
thought.
A recent
article published at TheWeek.com summed it up this way: "Rich people
prefer productive companies while the poor prefer gold. That's bad news."
