Why your financial decision depends on the relationship to money and stocks

Why your financial decision depends on the relationship to money and stocks

Money, financial decisions and their relativity

Stocks, money and financial decisions are relative. Wealth, which is measured in money, has no fixed reference value. For example, the value of euros to US dollars changes daily. Inflation also causes money to continually devalue. An example illustrates this effect: 20 years ago you could make two purchases for the family with 100 euros, whereas today you can only make one purchase.

The relationship between money, stocks and financial decisions

Financial decisions, particularly regarding stocks, are relative to available assets. The amount of money you have influences the intensity of the decision-making processes. Investing a million euros requires careful consideration as it is a significant amount. In contrast, an investor like Warren Buffett, with his portfolio of more than $100 billion, has less emotional pressure when making decisions.

Context plays a crucial role in financial decisions. The financial possibilities, the prospect of future income and the scope of the decision influence the decision-making process. An increase in income in the future can significantly change the valuation of an investment.

Influence of the relativistic view on financial decisions

Awareness of the relativity of money and financial decisions can lead to better investment behavior. It helps to be more careful and to recognize the impact of decisions. In some cases, however, the relative view can also lead to hesitation, as the example of a missed investment opportunity shows.

Although experienced investors like Warren Buffett feel less pressure because of their financial security, they too started small and learned to avoid making emotional decisions. Striving for smart and rational investment decisions leads to better results in the long term.