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12 May 21
Famously grown in huge fields in Holland, the beautiful and colourful tulip flower has always been a prized commodity. But, did you know that they once created such an investment rush that led to a single bulb becoming as expensive as a house and many people lost lots of money?!
The tulip market bubble
Tulips were first introduced to Europe in the late 16th Century and immediately became popular and desirable. The Dutch tulip bulb market bubble, also referred to as 'tulipmania' was one of the most famous market bubbles and crashes of all time. As prices rose, many people from all walks of life got carried away in a speculative fever, with some of them spending a whole year’s salary on rare or ‘broken’ bulbs. At the time, the rarest bulbs were selling for 6 times an average salary. A ‘broken’ bulb would produce wild and beautiful colour variations, which made them highly desirable to both growers and investors.
Scottish writer Charles Mackay described the ensuing madness in his book, Memoirs of Extraordinary Popular Delusions and the Madness of Crowds:
“A golden bait hung temptingly out before the people, and one after the other, they rushed to the tulip-marts, like flies around a honey-pot. Nobles, citizens, farmers, mechanics, sea-men, footmen, maid-servants, even chimney-sweeps and old clothes-women, dabbled in tulips.”
However, it didn’t quite work out long term, as the prices were driven up and up as a result, the price crashed, meaning that the bulbs people had spent so much money on were now worth much, much less than they paid for them. Many people were plunged into poverty, having spent their life savings on bulbs.
Could a financial adviser have helped?
In short, yes! Making the right decision about how best to invest your money is crucial, as is carefully assessing the risk level that you are comfortable with and investing accordingly. A financial adviser is there to provide high-quality investment advice, and can help you to assess the advantages and disadvantages of each investment approach. Had the tulip investors had a financial adviser to guide them through, he would likely have advised them to avoid this kind of high-risk investment unless they were willing to lose their money.
There is a famous saying in the investment and financial planning world; ‘time in the market, not timing the market’ and the Tulipmania situation is certainly a good example of this. A long-term investment strategy with a good assessment of the risks involved could have prevented so many people from losing their hard earned cash.
To find out more about how True Bearing can provide you with investment advice throughout your working life and after retirement, get in touch with us today.
By speaking to us, you can arrange a one-to-one introductory meeting at our expense. This will give you an opportunity to discuss your financial means and goals with us, so that we can work out what kind of investment strategy will deliver the best returns for you.
Telephone us on 01257 260011 to arrange your free financial health check, or fill out the Contact Us form on this page to request a call back at your convenience.