When it comes to investment and financial management, I wonder what your expected return is in mind?

3% to 5%? 5% to 10%? 10% to 20%?

For this question, different people will have different answers.

However, this answer is certainly related to this person's understanding of investment and financial management.

Some people believe that investment and financial management is to earn enough excess returns, create more wealth, and thus can immediately improve the quality of life of themselves and their families, and the purpose is "wealth creation".

Others may think that investment and financial management is to manage their own wealth well, as far as possible not to let their wealth shrink or lose, so as to put more time and energy into the career they love, and the purpose is "wealth preservation".

People with different purposes in investment and financial management must also have different expectations for investment returns, and their investment behaviors will also be very different.

We will not comment on which purpose is more reasonable for investment and financial management.

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Today's article, I just want to analyze what consequences may arise when our "investment ability" and "expected return" do not match.Not long ago, in Shanghai, there was an aunt who publicly sought a son-in-law.

The conditions set by the aunt for a son-in-law were also quite "unique"—she didn't care about houses or cars, only about financial management skills.

Regarding financial management skills, the aunt's requirements were: more than three years of experience in financial investment, a financial portfolio with an annualized return of over 10%, and priority would be given to those who could provide transaction records and performance proof.

Many netizens commented after seeing this, saying that it's still a bit easier to have a "house and a car"...

In recent years, with the rise of online courses, financial education for adults has become increasingly popular.

The phrase "work can only determine the lower limit of your wealth, while financial management can determine the upper limit" has pushed the "importance of financial management skills" to the forefront.

It seems that to become wealthy, relying solely on one's main job is not enough; we must also learn to manage our finances.

As a result, a host of "online financial learning platforms" such as WeChat, ChangX Academy, and JianX Finance have begun to emerge.

Observing the common characteristics of these online financial learning platforms, one would find that they are constantly conveying a seemingly very beautiful "concept" to people—Financial literacy is extremely important;

Mastering financial management can lead to a life of effortless success;

Mastering financial management can achieve financial freedom (which is an ideal state where one's future living expenses can be met solely by the passive income generated from investments).

To "win life effortlessly and embark on your path to financial freedom," you are required to spend thousands of dollars on their online courses, and you may also need to purchase the investment and financial products they recommend.

Do you also sense a hint of "trap" in this?

Is financial literacy really important?

Of course, it is.

After all, true financial literacy is not just about being able to earn relatively decent investment returns for oneself, but also about helping us understand the workings of the entire financial market and economic system, being clear about the risks behind various investments, knowing how to reasonably arrange our income and expenses, avoiding excessive consumption, planning for savings in advance, so that we can face the future of life with ease.

However, if we overly emphasize "how much wealth financial management can create for us" and take "earning a sufficiently high investment return" as the ultimate goal of improving our financial literacy, I believe this kind of investment and financial cognition is problematic, even distorted.

Because based on this cognition, what will ultimately be amplified and displayed is definitely "human greed."High-yield, high-risk investment financial products, as well as financial courses that claim to "achieve financial freedom," are actually exploiting "human greed" to collect everyone's "intelligence tax."

So, what level of return is considered "high"?

What level of return from investment and financial management is already considered stepping into the "trap of greed"?

The requirement of "an annualized return of over 10% in the financial portfolio" proposed by the mother-in-law looking for a son-in-law, what level does this actually represent?

Some people online have compiled a list of public fund managers with "more than 10 years of asset management experience and an annualized return of over 10%" based on publicly available market data.

In China, there are only 33 public fund managers who meet this requirement.

Of course, the "more than 10 years, annualized return of over 10%" mentioned here is also an average level after total return annualization, not that the return rate is over 10% every year.

However, such results also tell us a very profound truth - even the investment performance of the top professionals in the national investment level is like this. As a "novice" not from the investment circle, without a research team, without intelligent algorithms, without insider information, just relying on a bit of financial knowledge learned online, do you really think you can turn your life around and achieve financial freedom? Isn't that a bit too "idealistic"?

Suddenly, I thought of a joke Hu Lan told in the "Comedy Show":"My mom bought a financial product and asked me to take a look at it. I calculated the annualized return and it reached 110%. I said, 'Buffett works hard for a year and only makes 20%, what makes you think you can earn 110%?'"

We often say that understanding one's "capacity boundaries" is very important.

For the average non-professional investors, understanding their "investment capacity boundaries" is equally important.

If we think carefully, there are probably only two types of people around us who have very high expectations for investment returns.

One type is the "true investment gods" who are deeply involved in the investment circle. Because they can access internal information and scarce investment resources that are not easily available to us ordinary people, and this "information asymmetry" can generate excess returns for them.

The other type is those who have a basic understanding of investment skills but are filled with "mystifying confidence" in their investment abilities. Perhaps because they once bought a stock that soared at a certain period, they started to have unrealistic expectations for the financial activity of "investing."

However, those rational people who can clearly recognize their shortcomings in investment capabilities and understand that the financial investment market is full of risks and tricks, on the contrary, understand that they cannot have excessive expectations for the returns on investment and wealth management.

This reminds me of the classic "Dunning-Kruger effect" curve chart - in the period of lack of investment cognition, there is a "Mount Stupidity," which is full of "fearless" investors who are ignorant.

And when a person makes decisions that do not match their abilities due to their own cognitive limitations, they are likely to pay the corresponding price for their "recklessness."Sometimes I am quite puzzled as to why there are so many retail investors in China who are willing to repeatedly forget the "pain of the past," cheer up, and rush to put their money into the stock market.

It's important to understand that in the brutal financial market, those without a professional investment background, without a professional research team, unable to obtain real insider information, and can only rely on hearsay and their own eyes to watch the market, are no different from an ordinary person sparring with a martial arts coach when facing professional investment institutions in the financial market with huge funds and technical barriers.

We may boast to our friends after following the trend and buying stocks like Moutai or Tesla that have skyrocketed, saying "look at how awesome my investment is," but in private, we must recognize our own investment capabilities and whether this time we made money in the stock market by strength or by luck.

When we do ordinary things and feel that our abilities are not enough, we will still weigh the pros and cons and will not act rashly.

So why, when it comes to investment and financial management, when it comes to managing the wealth we have accumulated through hard work, can we step out of our ability boundaries and "spar" with professional investment institutions regardless of everything?

The Shanghai Stock Exchange once released a set of average annualized returns of investment accounts for retail investors, institutional investors, and corporate legal person investors from January 2016 to June 2019.

It can be seen that even though the performance of our A-shares in the past few years was not so good, institutional investors and corporate legal person investors still made a "lot of money" during these years.

On the side of retail investors, whether it is small retail investors with a capital scale of less than 100,000 yuan or large retail investors with a capital scale of more than 10 million yuan, the average annualized return level is all negative, and the difference is only in how much they lose.

The gap in investment strength is clear at a glance.In the final analysis, investment and financial management is actually a decision-making process at the cognitive level.

What to buy, what to invest in, and how high an investment return expectation to set for oneself all depend on one's own cognition.

I have set several principles for my investments:

1. I will not touch investments that are beyond my cognitive scope.

2. I will not touch investments that I do not understand.

3. I will not touch investments that require a lot of time to research thoroughly.

4. I will not touch investments that promise excessively high returns.

5. Once I have chosen a particular investment, regardless of whether it rises or falls in the future, or whether the returns are high or low, I will view it with an ordinary mind, without sorrow or joy.

After setting these principles, I find that investment and financial management have become very simple. They are neither complicated nor do they consume too much time and energy, because everything I choose is within my cognitive range.For instance, take the Ant Group's strategic allocation fund that was all the rage a few days ago; I didn't purchase it. Firstly, I didn't spend time researching this fund, and at the same time, I'm not very familiar with the composition of the stocks within it.

The reason I didn't follow the trend to buy it is that the behavior of "following the trend" doesn't belong to my own cognition, hence I didn't want to make that decision.

Otherwise, if the fund incurs losses in the future or the returns do not meet expectations, I wouldn't know how to review this investment—whether it's a mistake in investment decision-making or a mistake caused by the behavior of "following the trend"?

After seeing the principles I've set out above, many friends might say: investing in such a way, the return must be quite low, right?

Yes, the returns are indeed not high.

My expected return for stable value-added investments is only about 3% to 5% annually, slightly higher than the yield on government bonds (as a reference for risk-free returns, which is currently between 2% and 3%).

This is because the products I invest in are also accessible to the general public, have a simple form, and are safe and reliable (such as savings insurance), and the nature of these products dictates that they cannot provide excess returns far above the risk-free rate.

As for risky investments with value fluctuations (which I usually only buy in the form of public mutual funds), I have not set any return expectations, and I might not even check my phone once a month to see whether the funds I've purchased have gone up or down.

Because within my realm of cognition, risky investments are made with one's own disposable income, so whether they rise or fall (of course, I am optimistic about the long-term increase) actually doesn't have a significant impact on me, and I can view it with a normal mindset.

Finally, let's return to the question posed in the article's title.Wealth management, is it truly for "creating wealth" or "preserving wealth"?

If, as many online financial education platforms claim, "work can only determine the lower limit of your wealth, while wealth management can determine the upper limit," then the role of wealth management in our lives must be "creating wealth."

However, my perspective is exactly the opposite.

Because once we recognize our "investment capability boundaries," we will realize that as non-investment professionals, unless we intend to rely on luck to "gamble," the world will hardly leave any opportunities for us to "get rich" through investment and wealth management.

This is akin to athletes not being able to earn money by healing the sick or scientists not being able to earn money by helping people with lawsuits.

And the outcome of "gambling" will be similar to that of retail investors in the stock market, where losses outweigh gains.

When we approach investments with an overly high psychological expectation, the risks and tricks behind those investments are very likely to cause us to lose even our existing wealth.

Therefore, in my view, wealth management ability has never determined the upper limit of our wealth, but rather whether we can have enough wealth to live a good life.

This is because a more important core of wealth management is to help us understand the risks behind various investments more clearly, learn how to arrange our income and expenses more reasonably, and how to better plan for long-term savings.

From this perspective, the role of wealth management in our lives is actually to "preserve wealth."Only by safeguarding the wealth we have earned through hard work can we devote more time and energy to the causes we are passionate about, thereby realizing our life's value and creating more wealth.