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Collection: Peter Lynch - #31 'Be Literate Before Investing'



Speaking of banks, are you concerned about banks being allowed to offer mutual funds and the confusion that creates among investors over whether bank deposits are insured or not insured? Or how much is insured? Or the whole question of deregulation...


I think it’s very positive that banks will be allowed to sell mutual funds because they’ll probably sell a lot of Fidelity mutual funds. That’s very important. No, but seriously, I think it’s very important that people understand when they own a bond fund that bonds can go up and down. Bonds are just about as volatile as stocks. If they own a 30-year bond fund, then you can lose 25-30% of your money fast even if they’re government bonds. People have to understand this.

There’s an incredible rate of illiteracy in our public. All they ever hear about is what happened today to Bristol-Myers going up $2 or $3, what happened to Dow Jones. They don’t get to learn anything about America. People at some point in their career presented – they are near retirement – they are given, $450,000-$500,000 as early retirement. They have no experience. They don’t know what a bond is. They don’t know what stocks are. They have to make decisions in 30 or 60 days, or they’ll have a big tax consequence. These people have no experience learning about the stock market. It’s a tragedy.

I think anything we can do to educate the public, if you can convince people, if they understand the volatility of the stock market – I’m not saying anybody should buy a stock. I’m just saying if you purchase a stock, you have to do certain things. If you purchase a stock and do certain things, you will do better. If you’re not ready to do those things, you should keep your money in the bank. Keep your money in a money market fund.

Some people don’t do their homework, they don’t have the stomach for it. They should stay out. They’re not doing anybody any good by taking half their life savings and putting it in the stock market. They’ve been lucky enough to save $50,000 or $60,000 to send their kids to college, and one is going to start in a year. They’re going to take all that money and put it in an equity mutual fund with a one-year horizon. That’s doing no one any good. So I think the more – whether its the banks explain it or brokers explain it, anybody that does – they are working on this. The SEC is working hard on explaining to people the nature of these products. If they understand them, they’ll do better with it. The more information, the merrier.

Fidelity is launching a major study – it will be out by the end of this year – on retirement. We’ll do it over 1,600 people, over 300 experts. We’ll do a major study and explain to people the nature of retirement and how they can best understand how they should invest their assets. We are not going to mention Fidelity – maybe subliminally. We’re trying to help. The more we can do this – There’s been an incredible push by the SEC to do this, and I think it’s a positive element.


[YAPSS Takeaway]

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