What do Harry Potter and Successful Investors Have in Common?

By Ryan Snefsky

Fortunately for you, the answer is not that successful investors have magical powers or access to a Divination class to learn how to gain insight into the future. While investors do not have the benefit of being able to attend Hogwarts School of Witchcraft and Wizardry, there is something to be said for how they educate and prepare their wizards.

Harry Potter was much more than a one trick wizard.

Imagine how ineffective Harry Potter would have been on his adventures if he had taken only the Potions class without also having the benefit of the Defense Against the Dark Arts class or any of the other classes offered at Hogwarts. What good would it do for Harry if he could concoct a love potion while a dementor was trying to suck his soul out through his face? A love potion is certainly of no help against a dementor.

Without knowing how to properly cast the Expecto Patronum spell, Harry would have found himself up the creek without a broom stick. If he did not have a variety of different skills for a variety of different circumstances, he never would have succeeded against all of the challenges that were thrown at him throughout the years. The same thing is true for investors.

Successful investors can cast a variety of different "spells."

To be successful as an investor, you need to have some education on a variety of different "spells" and "potions," or effectively strategies and investment vehicles, to be able to capitalize on the opportunities and pitfalls the markets throw at you. A one trick investor stands to get crushed over the long-term.

Maybe you have a lot of knowledge about stocks, but you are coming up short in your knowledge of bonds. Do you know how an inevitable future rise in interest rates will affect the bond portion of your portfolio? Do you know the different effects interest rates have on short-term verses long-term bonds? How would a downgrade to the credit rating of the United States affect your bonds? Your knowledge of stocks will not help you from potentially getting crushed on the bond side.

Maybe you haven't quite gotten to the intricacies of stocks or bonds yet, but you are putting money into some mutual funds at the suggestion of your family or even a financial advisor. Are you aware that certain funds charge what's called a 12b-1 fee, which is essentially a fee to market the mutual fund to you?

Are you aware that you might be paying substantially more in fees and commissions to your advisor or broker than you have to depending on what type of shares you purchased? Without some unbiased knowledge of what is really at your disposal, you may be bleeding money without even realizing it.

Some investment "spells" can even help you do some seemingly unconventional things.

Did you know that there are investment "spells," or strategies, that you can use to make money when the stock market is getting crushed?

It is even possible to protect your portfolio against significant market declines in a way that is very similar to insuring your car or house. Investors that took significant losses in the dot com bust or the more recent housing bust could have avoided most of their losses, if they only had a few extra "spells" at their disposal.

Learning the right investment "spells" is a lot easier than attending Hogwarts.

The "spells" necessary to be a successful investor are far less complicated than you might expect. Fortunately, it's a lot easier than learning to deal with dragons, dementors, and Death Eaters.

The material is not really difficult at all. It's just new for most people, because most high school and college curricula never address the necessary information unless a student is on a specialized path to enter the investment industry. I've even enjoyed teaching all different levels of investment strategies and concepts to average high school students as a guest speaker. If average high school students can get it, so can you!

Conclusion

If you want to have as much success in conquering the financial markets as Harry Potter had in conquering Lord Voldemort or any of his other adversaries, make yourself as well-rounded of an investment wizard as you can. Armed with the right knowledge, you will have a "spell" ready for whatever the markets cast your way.