The difficult part, particularly for those who are new to investing or have always let someone else manage their money, is differentiating the good from the bad.
One criterion you may use is where the advice is coming from. If you’re getting it from any of the following sources, be sure to apply extra scrutiny when analyzing the value of such advice.
This post was written by Dr. Jim Dahle and originally published on The White Coat Investor.
The 10 Worst Places To Get Investing Advice
If measured by volume (either definition), the vast majority of investing advice out there is terrible. In the spirit of David Letterman’s Top 10 Countdowns, here are the ten worst places to get investing advice.
# 10 Unsolicited Emails
Have you looked at your email junk folder lately? Aside from ads for Viagra, genital enlargement pills, and x-rated material, there are plenty of “hot stock tips,” usually for penny stock pump and dump schemes. Trust me when I say that if somebody truly has a hot stock tip, they don’t send it out to 10,000 people they don’t know.
#9 The Typical Internet Forum
There are hundreds of internet forums out there dedicated to investing. Frankly, the vast majority are terrible, with the blind leading the blind advocating all kinds of non-evidence based methods of investing. Stock picking, market timing, options, futures, FOREX etc.., etc…
Are there good forums out there? Of course. These include the Bogleheads(primarily index fund investing), Bigger Pockets (primarily real estate) and the WCI Forum, WCI Facebook Group, PoF Facebook Group, PIMD Facebook Group, and WCI Subreddit. There are probably a few other decent ones out there, but remember the barrier to entry to getting on the internet and sounding authoritative is pretty darn low (just look at me, right?)
#8 The Doctors Lounge
If the majority of investors in any given enterprise are physicians, there’s an awfully good chance it is a bad investment. Are there exceptions? Sure. But double your regular due diligence to make sure. However, over the last couple of years, I’ve noticed that doctor’s lounge investing conversations, both in real life and online, are showing signs of improvement. I hope I’m responsible for some of that.
#7 Your Family or Friend Who Recently Started With a Financial Services Company
Most people who sign up with a financial services company wash out after a few months. They’re simply not cut out to be salesmen. However, one benefit of this high turnover rate is that the company gets the chance to sell to the family and friends of these wash-outs. Don’t be the mark.
#6 Anyone You Attend Church With
Now, I go to church and you may also. But it’s rather unbelievable just how many investment scams are run through churches. Churches are a lot like family, and you tend to be vulnerable and trusting with those who share the same beliefs and values. Investing, however, is best done with the brain, and not the heart.
# 5 Your Stomach
Just as your heart gives bad advice, so does your stomach. Cold, hard logic is an investor’s ally. Excitement, greed, and fear, especially the kind that leaves you lying awake at night with heartburn, is an investor’s enemy. Don’t take investing advice from your stomach, especially during a bear market.
# 4 Your TV
There is almost no useful investing information on television. TV is great for current events, but the library is probably a better source of solid investing information. The stuff you really need to know just doesn’t change that often. A long-term investor doesn’t care what the S&P 500 did this month, much less today, and certainly doesn’t need to see it go up and down in real-time.
#3 Your Insurance Agent
I know lots of insurance agents. Some are great. They know all kinds of details about types of insurance I need, such as term life, disability, and malpractice. However, their training is in insurance (and mostly in how to sell it), not investing, and is primarily provided by their insurance company.
Insurance-based investing solutions, such as annuities and cash value life insurance, have serious downsides, and commissioned insurance agents (that’s all of them, by the way) are likely to gloss over these downsides, if they understand them at all.
#2 Your Local Brokerage Shop
There are all kinds of local places for you to get investing information. For some reason, they usually seem to have two names, such as Merrill-Lynch, Edward-Jones, Waddell and Reed, Raymond James, Morgan Stanley Smith Barney (4 names must be better than two right?), or Wells Fargo.
However, I also include local offices for more reputable firms, such as Fidelity, T. Rowe Price, and Charles Schwab. The issue is that these offices are hotbeds of commissioned salesmen. They don’t make money unless they sell you something, and taking advice from someone trying to sell you something besides their advice is usually a bad idea. (Yes, I am aware that some of these firms also offer a fee-only advisory service usually based on an AUM fee.)
#1 Your Bank or Credit Union
You’ve trusted them for years. You know the tellers by first name. You have your mortgage there, and perhaps even a car loan. They’ve had your checking account for 15 years. When it’s time to invest, why wouldn’t you trust them for advice? They have IRAs, right?
The worst “professionally designed” portfolios I’ve ever seen come from “the investment guy” in your local bank.
So, where can you go to get trustworthy advice? If you’re willing to pay for it, you can go to a good fee-only advisor. Although the price is often quite high, there is no price too low for bad advice. You can limit the damage to your wallet by using an advisor charging an hourly rate to give you a second opinion on a portfolio you design yourself. You may also find an advisor with a reasonable annual retainer fee or Asset Under Management charge.
There are dozens of high quality investing books out there. If you’re too cheap to purchase them, borrow them from the library. The latest ones aren’t any better than the ones that came out 5 or 10 years ago. In fact, the older ones are better because you can then see if the author knew what he was talking about.
As mentioned earlier, there are reputable places on the internet where high-quality information can be found. In general, the less anonymity and the more longevity of a forum or blog, the better. Surprisingly, I’ve found some excellent investing information on the websites of the more reputable mutual fund companies such as Vanguard, DFA, Bridgeway, Fidelity, and T. Rowe Price.
While I’ve been disappointed at articles I’ve seen in even reputable financial publications such as The Wall Street Journal, Forbes, and Money, there has been a vast improvement over the last five years, and these publications were always heads and shoulders above the advice found in other publications.
High-quality investing information and advice is out there, but if you don’t know how to recognize it, you’re likely to fall prey to the far more common bad advice and drown in the sea of useless information.
What do you think? Did I miss any bad sources of investing information? How about some good ones? Comment below!
7 thoughts on “The 10 Worst Places To Get Investing Advice”
How about the local medical society? They provided our malpractice insurance and “access” to an advisor… you can guess how that went. It took a bit to undo what he put us in.
I’ve never been able to understand just how foolish even intelligent, highly educated people often behave when it comes to investing their life’s savings. It really isn’t that complicated. Any smart person can get a good understanding of sound investment practice in a couple of evenings’ study, I’d say.
I’d give it a few months of evening study, but in general, I agree. It can take a long, long time to find the right resources. People spend months or years reading the wrong sources from people looking to profit off of them before finding the information they really need.
I was stunned when my Fidelity representative kept pushing me to buy stocks rather than the conservative CDs I was accumulating as a “cash reserve.” When I told him I was not going to do it, I could hear a sigh of resignation over the phone. It was clear he lost interest in the discussion.
Now I just use Fidelity to answer my questions, not for advice. They are great at that. The financial world has its own vocabulary, just like medicine, and sometimes it’s the words that make everything sound confusing, not the substance.
Like the sign posted in Oral Diagnosis:
Answers requiring thought $10
Answers correct $50
No one is more concerned with the growth and safety your money than you.
Be more concerned with the return of your principle than the return on your principle.
Take the time to educate yourself about investment basics, then use low cost index funds to invest in.
Remember the 11th commandment: Thou shalt resist the urge to get something for nothing.
Just ain’t no free lunch.
And Fidelity is known to be one of the more reputable brokerages. Imagine what the others are like!
For me my bad investment advice came from the CPA I used in residency.
He suggested a financial advisor to use who them promptly put me in a high front load high expense ratio mutual fund which obviously gave him a commission.
Luckily the amount of money was low relatively speaking now but it was a lot to me back then (about 10% of my resident salary).
Only years later when I started reading on finance did I decide that even though I took the biggest hit already I needed to move the money out which I did and eventually put it in index investing.
No matter if you are a DIY investor or pay someone to do it, I think it is important to at least get some basic knowledge by reading material on finance so you can at least understand what is being done or have questions to ask your advisor. Even physicians make mistakes and I’m sure the same goes through with any profession. So always having some sort of counter balance is good and that requires some vested interest on your part