They say you can learn a lot from the movies. This was especially true this year when Michael Lewis’s book The Big Short was made into a film. It was scintillating entertainment starring Ryan Gosling, Christian Bale and Steve Carrell, but also carried several empowering money tips to help us build our wealth without getting duped by get-rich-quick schemes. Here’s a few notable financial lessons we found in the 2016 Oscar best picture nominee that are worth making a part of your daily life:
1. A little financial literacy goes a long way
No one would say that learning the lingo of high finance is easy but The Big Short shows that even difficult financial concepts like credit default swaps, synthetic collateral debt obligations (CDOs) and sub-prime mortgages are easy to understand if you take the time to research them—and if you realize that irrational human behaviour often lies at the heart of all these get-rich-quick products. That’s why pop-star and actress Selena Gomez explaining synthetic CDOs brought home the point that finance isn’t that hard—especially if you’re keen on learning if there’s something in it for you. (Watch the clip above for her cameo.)
2. Money doesn’t buy happiness
We’d like to think it does, but several characters from The Big Short showed that this just isn’t true. Eccentric hedge fund manager Mike Burry never really looked particularly happy making gobs of money—even after he was proved right regarding his bets on sub-prime mortgage loans. More money often means more stress.
3. It pays to diversify
From 2008 to 2011, the period we now call the Great Recession, markets tanked and millions of people worldwide lost their jobs. But people whose portfolios were well diversified in a few select index funds and held on throughout that market downturn have gone on to recoup their losses and even make sizable gains. People who kept their investments intact and skipped selling didn’t lose the actual money they had invested. The lesson? Like Mike Burry, you have to be confident in your investment strategy and hang on for the long haul so you can skate through the downturns. For most people, a well diversified portfolio allows them to do this easily.
4. Be careful who you trust
The financial disasters chronicled in The Big Short are hardly isolated incidents. Many times in history—Enron, Bernie Madoff, SAC Capital—so-called experts have gotten regular people in a lot of trouble. So be careful who you trust with your money. Be diligent and monitor your portfolio because honestly, nobody cares more about your money than you do.
5. Don’t buy a financial product you’re clueless about
It’s common for financial experts to talk in financial lingo and acronyms that you may not understand. Don’t be intimidated by this. Ask for a simple explanation of the product they’re trying to sell you. If they can’t do this to your satisfaction, walk away. In the Big Short, even big hedge fund investors didn’t truly understand some of the new risky financial products being sold (“synthetic CDOs” for instance) and they invested in them simply because they thought they were sophisticated products that the big boys bought—so they couldn’t fail. Well, they were wrong.
6. Absolute certainty doesn’t exist
The Big Short is fundamentally about the myth that housing values could never fall. This is a lie. The simple truth is you can’t make money for nothing. And every investment—including such so-called safe bets as housing—is really just a calculated risk. Markets go up and markets go down. Understanding that risk and minimizing it in your portfolio will give you better market performance, but never without some losses somewhere.