I financial markets they work thanks to the fact that each wealth holder is different from the others in terms of needs to be satisfied, vision of the future, bet on the subjective lifespan, degree of tolerance towards the risks of loss, and so on. One of the clearest results of economic theory is that, if this were not the case - that is, if all financial investors were identical with respect to the factors listed above (and some others not mentioned) - there would be no market exchange and, therefore, in the end In the end, financial markets would not exist.
At every age your financial investment
Economists have used this result to strengthen their analyzes on financial choices more appropriate than them different types of investors they should carry out. In particular, they started from the obvious observation that investing in financial assets implies giving up, to a more or less marked extent and for a more or less long period, the double advantage of liquidity: the certainty of a nominal value, which does not change over time (100 euros today will be 100 euros tomorrow), and the possibility of an immediate exchange for goods and services. However, when it came to using such analyzes to recommend concrete market behavior, simplifications were excessive. Thus, in the common sense, the long time horizon available to young it has often become a sufficient factor to recommend long-term financial investments with a high equity impact. This statement ignores, however, the fact that many young people have modest financial assets and reports of precarious work and who, consequently, may have unexpected liquidity needs in the short term. Symmetrically, common sense recommends a older investors, and therefore with a physiologically limited time horizon, to opt for short-term and low-risk financial activities so as to guarantee a peaceful old age by using a large part of the wealth accumulated in previous active phases of life. However, this recommendation does not take into account the fact that, at least in the euro area and in Italy, a substantial part of the stock of financial wealth is held by those aged over sixty-five with high propensity for inheritance in favor of children and grandchildren.
Each financing choice depends on the future performance of the "asset"
These considerations suggest carrying out somewhat more systematic, even if boring, reasoning. Let's start from the following consideration: purchases of any form of financial asset (from bank deposits to market debts, from shares listed on regulated markets to various types of private equity) are loans, which last over time, in favor of economic entities (definable debtors, be they: businesses, states, financial intermediaries, families). This means that a investment financial involves the waiver to liquidity 'today' to obtain liquidity 'tomorrow'. Each of these investments is characterized by specific contractual clauses. A debt contract can provide for financiers to offer liquidity in exchange for a credit security which can be extinguished at any moment of time under predefined conditions (typically, current accounts) or which is extinguished at pre-established future dates and which corresponds to nominal interest rates (fixed or variable but, as a rule, positive) until expiry. Other debt contracts are characterized by credit securities without expiration (irredeemable), which promise interest over time of a greater amount than the liquidity invested at the beginning. Loans, relating to the acquisition of ownership titles (for example, shares) of a given company or other economic initiative, however, give the right to collect variable portions of the net value of that company or economic initiative over time. It follows that the results of each financing choice depend on thefuture trend of the "good" in which it was decided to invest.
The degree of tolerance towards the risks of loss
The last statement implies that, regarding the future economic trends of given “assets”, debt or property securities are risky. Moreover, the specific degree of risk of the financial security does not only depend on the financed activity but also on the length of the commitment and the economic phase in which it was undertaken, on the type of benefits envisaged by the contract (for example, return or otherwise of the initial investment on defined dates), on the exchangeability of debt or property securities in regulated and efficient markets, even if at uncertain and variable prices, and so on. That is, every financial investment bears counterparty risks, liquidity risks, operational risks and market risks. As recently happened to customers of medium-sized Californian banks, even the financial activity that appears less risky (a checking account deposit) can cause major losses to investors in the event of bankruptcy of the debtor (i.e. the banks themselves). It may also happen that, given the complex interactions between the various forms of risk, financial assets considered less risky than others (typically, fixed income debt securities compared to shares) incorporate high risk in particular economic situations. Finally, it may happen that, in particular periods uncertainty e instability due to specific shocks, long-term investments (and, therefore, with high liquidity risk) absorb other types of risk which are, in that period, of extreme relevance better than short-term investments.
The importance of a "minimal" financial education
The analysis on time and the time horizon of financial investments raises problems very complex. This complexity confirms the cruciality offinancial education, albeit in a perhaps unusual sense. It is unrealistic to aim for information so deep and widespread as to allow competent direct management of financial wealth by individual families. The minimum competence, which must be acquired by all financial investors - even those with a modest amount of wealth - must be sufficient to satisfy two conditions. First: effective use of instruments regulatory, which measure the individual attitude to financial risk, and the ability to make choices that comply with one's risk profile. Second: theability to choose, based on your needs, the professionals to whom you can delegate the management of your assets and monitor their investment behavior. If this position of mine is acceptable, it is also necessary to develop in-depth methods of financial education for professional investors. This would, among other things, give depth to the regulatory principle according to which all financial intermediaries must act in the interests of their customers.