The Financial System
In theory, it exists to connect borrowers, lenders and savers to make sure money is used efficiently. For instance, savers park their assets with financial institutions who then lend out those deposits to people who are trying to borrow.
Note that people borrow not just to buy things but also to make investments and speculate.
As funds flow back and forth between borrowers, lenders and savers it passes through financial intermediaries (plugs) and the markets in which they connect.
Zero interest rates are flipping the theory on its head!
System Participants
Even if you don’t work in finance, the fact you earn/spend/save/invest means you are all participants of the financial system as a whole. Therefore we are impacted by everything that happens.
As an individual (or household), there will always be an asymmetry in regards to the outcomes of the financial system versus institutions despite decentralisation. That is because general outcomes are largely a function of the size of capital, of which institutions control WAY more. Think about it, a 10% investment return on £1000 is far less significant than 10% on £1,000,000,000. Development of technology in traditional markets and the rapid output of disruptive protocols from the cryptocurrency space as well as other 2.0 type markets means the balance of power is driving vast participation. Nevertheless, outcomes are dictated by the size of controlled capital and that won’t change until capitalism is destroyed!
With that said, it is so much easier than even just five years ago to be less of a passive blindsided participant in the financial system. So there aren’t really many excuses!
Effective Participation
The financial system can get complex in parts and has some really dark corners (this is usually more pronounced in the institutional space). So remember, there’s more to life!
Get your approach right
Focus on your personal aims and circumstance, nobody else’s matters.
Get your partners right
Even the most active and knowledgeable individuals still collect a range of information from different trustworthy sources and work on developing relevant skills. Remember, outsourcing and leveraging from others is great but having a base of indisputable knowledge forms a great foundation.
Due Diligence
Check the platforms you consume from are credible – including us! Do they have experience and/or technical expertise to speak on a subject? This isn’t always a traditional assessment but often in finance real world industry experience is always a good starting point.
Make Conscious Decisions
Why? is the best question ever. Children overuse it but it is the best way to stop oneself from walking blindly. So the next time you make a financial decision ask yourself why and your answer will either make you more certain or lead you to question that choice altogether.
House Admin
Thanks to everyone who participated in last week’s survey. There are some really interesting suggestions and a lot more than I anticipated so I will add them to the book of work and publish in due course. As you know, we like to focus on useable principles so that is where the efforts will be placed.
Also, I’ve updated the dates in the publication schedule to ‘2021’, hopefully it wasn’t too confusing!
Catch you next week,
Peace!
Remember, if you want to tune into the rocky road to £100k journey consider jumping on to the premium tier
Free Publications - Coming Up:
[ Today @ 11am ] Clubhouse: What’s in Your Portfolio?
[ 13th Feb 2021 ] Alternative Investments *chosen by you*
[ 20th Feb 2021 ] Credit Cards - Useful or Dangerous?
[ 27th Feb 2021 ] Your Expertise is Your Edge
[ 6th Mar 2021 ] New Tax Year Prep