This is all important stuff, because those who don’t understand basic financial concepts, such as how money grows, how inflation affects us, and how diversification can reduce risk, are likely to make suboptimal financial decisions throughout their lives, ending up with poorer results as they approach and enter retirement. Consider the inflation issue, for example: If you don’t appreciate how inflation shrinks the value of money over time, you might be thinking that your expected income stream in retirement, from Social Security and/or a pension, will be enough to live on. Factoring in inflation, though, you might understand that your expected $30,000 per year could have the purchasing power of only $14,000 in 25 years. (emphasis added)
In his annual letter to shareholders which you should read here:
Investors, of course, can, by their own behavior, make stock ownership highly risky.
And many do. Active trading, attempts to “time” market movements, inadequate
diversification, the payment of high and unnecessary fees to managers and advisors,
and the use of borrowed money can destroy the decent returns that a life-long owner
equities would otherwise enjoy. Indeed, borrowed money has no place in the investor’s tool kit: Anything can happen anytime in markets. And no advisor, economist, or TV commentator – and definitely not Charlie nor I – can tell you when chaos will occur.