Who To Trust When Investing
Like it or not, we live in a modern hyperconnected world. Always on, always connected. 24/7. The average consumer is constantly told what to eat, what to wear, how to think, how to live, and where to invest. It’s no wonder that “fake news” is now a thing.
We try to tell ourselves “Hey, I’m a free thinker. I not influenced by the media!” But it’s far more likely we’re simply influenced by the most convincing voices around us — Influencers that know how manipulate the weaknesses of our human psychology.
Knowing who to trust is no longer as simple as a firm handshake and a good word-of-mouth reputation. Especially when it comes to investing advice. Talking heads on the TV, celebrities, financial advisors, bloggers, investing gurus, even family members… All of these influencers can have a powerful effect on how we think and control our money.
Listen to the right advice, and you could find your life filled with financial freedom. Listen to the wrong advice, and you might find yourself working well past a traditional retirement age.
So who can you really trust for investing advice?
Don’t Trust Me
It seems like everyone and their mother offers investing advice these days. Myself included. On this blog you’ll find plenty of investing advice — and much of it is pretty unconventional.
Don’t trust me, I’m unconventional. And I don’t mind being unconventional. I got where I am today by being a big weirdo. I’m not your average personal finance blogger trying to sell a book, get you to sign-up for a credit card, or otherwise push a “get rich quick” scheme.
I simply believe in compounding, and getting rich slowly. This is probably not what you’re looking for.
Three years ago I started this site because I wanted to leave a little investing advice for my kids. Something my kids could one day read and actually trust. That’s still my mission today.
The problem is, kids rarely want to learn from their parents. They’d rather go their own way. It’s the nature of rebellious teenagers to do some rebelling, and for Life to teach the actual lessons. That’s school of hard knocks.
I just want my advice to be here when my boys are finally ready — however long that takes. When they’ve finally been kicked around enough by Life, my words will be here.
Don’t Trust The Gurus
One of the more common sources of investing advice comes from the so-called “Gurus”. Individuals who set themselves up as authorities on a given subject, and then derive profit from their followers. It’s an age-old story that’s been around for centuries.
Creating authority is one of the key methods used to persuade people. Usually it’s simply used for profit. Investing gurus commonly derive profit by selling books, offering investing courses, or expensive weekend seminars on “how to invest”.
Robert Kiyosaki is one such investing guru. He’s the writer of books, like the “Rich Dad Poor Dad” series. Kiyosaki also profits by selling expensive seats at his investing seminars that teach people how to “get rich” by investing in leveraged real estate deals.
I’ve even read his “Rich Dad Poor Dad” book. It sold over 58 million copies, and actually wasn’t terrible. The problem is, the contents are probably fake. Sneaky sales tactics at his seminars and the inability to prove many of the real estate deals described in his books got Kiyosaki into some serious trouble.
The truth of the matter was, Kiyosaki earned most of his money by selling books and investing seminars, NOT from making profitable real estate deals like those he boasts about. He simply sells a “get-rich” scam to get rich himself.
After numerous class action lawsuits, and two CBC Canada investigative reports, Kiyosaki’s company Rich Global LLC filed for bankruptcy in 2012. Despite the bankruptcy and a tarnished reputation, Kiyosaki still sells this same “Rich Dad” snake oil today.
To anyone that will listen.
My advice about Gurus is simple — Don’t listen to them. More often than not, they’re just selling something. They almost certainly DID NOT get rich by buying what they’re selling today. Neither will you.
More often than not, extremely wealthy people do not offer investing advice. They make money other ways. There are a few billionaires that write books, (like Richard Branson) but those books are usually NOT about investing.
Frequently, they write about how they built their business — The real source of their wealth.
Don’t Trust Financial Advisors Either
Many people use Financial Advisors to help make investing decisions today. With a license (garnered by taking the Series 65 or 66 test) and three fancy letters after their name, financial advisors certainly seem like they’d be trustworthy givers of financial advice.
Sadly, in my experience Financial Advisors are no better than the gurus. In some cases, they’re even worse.
How do I know this? Some very bad personal experiences.
My own parents once fell prey to these slick financial advisors. They lost hundreds of thousands of dollars in the process of listening to these so called “licensed advisors”.
That financial advisor churned their account like a tub of butter. He profiting by selling high-fee front-end loaded mutual funds. Then, he moved them to other funds when those funds underperformed. Then he sold them bonds for which he would earn a commission (it was buried in the fine print, but his firm earned hefty fees for moving those bonds). And so on.
The advisor did this and more — churning their account over and over again for the fees he would earn. All in the name of “good advise”.
Once I learned about it, of course I put a stop to it. I was outraged. There’s absolutely no reason why anyone should be selling front-end loaded mutual funds that are obviously underperforming the market in this day and age.
Over the last decade my parent’s accounts performed horribly. No doubt because of the garbage this financial advisor pushed them into. During this time period, they vastly underperformed a simple index fund.
The wool was definitely pulled over their eyes, and it took me years before I could unclaw the funds away from that financial vampire. It was a sickening situation, and one that definitely reinforced my feelings against financial advisors.
In my opinion, they prey on the elderly and uneducated. Unless you are significantly educated in the ways of personal finance, you’d never even know they were taking your money.
Yes, some people swear by Financial Advisors. But I don’t. I’ve seen the damage a CFA can do, up-close and personal. It’s not pretty.
Cultivate An Informed Opinion
The fact of the matter is, no one truly cares about your money but you. Most people simply want to take your money. Don’t trust anyone but yourself.
YOU are the only person that’s going to turn YOUR money into MORE money. Educating yourself is the only way that’s going to happen. Full-stop.
Yes, it will take time. Yes, might need to actually read a few good books. Don’t just stop at a few books. Read constantly. Learn constantly. Turn off the talking heads telling you what the market did today. Instead, read the Wall Street Journal. Read a financial prospectus. Read annual reports. Read investing blogs. Read everything financial you can get your hands on.
Eventually, some of it will start to make sense. You’ll begin to learn how and why people make money investing. You’ll learn the true nature of markets, and discover the difference between investing and speculation. You might even learn what it is to be a farmer and not a hunter.
Over time, you’ll also begin to realize that many of the big ideas in personal finance conflict with one another. Within simplicity lies vast complexity.
This what it means to cultivate an informed opinion. To build a depth of understanding. To know where knowledge and theory fall down, and where the real world begins. To know that no investing strategy works perfectly in all kinds of markets. To know what works and what doesn’t…
This is the only investing advice you should ever listen to — Educate yourself.
THEN make your own decision.
[Image Credit: Flickr]
Amen!
Well said… well said…
Well said. And I think the soft sell of your wisdom will make it easier for the lads to accept when they’re ready. It is too bad there is almost no one we can trust, but once you’ve accepted that, you can find little bits of wise counsel everywhere. Putting those together starts to build that depth of understanding.
Get educated.
Trust yourself.
Continue learning.
Worked for me.
Mr.T – Do you have a list of your dividend stocks somewhere on your blog? I read thru a few articles and see div income but not a list of the stocks and their yield, etc. Also please let me know when you find your sunnier, warmer, low tax place to live. We’ve lived in south Puget Sound (Gig Harbor) for 15 years and are looking for the same.
Thanks, Mr. S
A lack of knowledge and admitting you don’t know who to trust is a good starting point for all investing.
Collecting growing dividends and buying at a good entry point is normally a good conservative strategy with a focus on income but there are still many cases when the stocks turn into a value trap. Continuous education is your best education against this.
Stay warm and dry over there in the cold PNW!
-Mike
Classic… Can’t wait for my sons to read this post in the future as well.
I got taken advantage of by a financial advisor that my cpa at the time recommended (I am sure there were kickbacks between them). Luckily the amount of money involved was little but it was significant to what I was making at the time as a resident.
I got placed in high front load funds which I’m sure the planner got a nice commission from.
There are good financial planners out there but it is so hard to know what you have until it may be too late. That is why you have to have some sort of financial edjsadln to know what to look for and have an understanding of why you are investing in a particular asset and not blindly trust someone
A little bit of financial education now can save you a ton of money and I feel is the best ROI you can achieve
I usually don’t comment here but this post was simply spot on. Like you, I have a similar experience with my parents listening to a financial advisor years ago as a portion of their savings have been whittled down in exactly the same manner you describe. Needless to say, an end to that disaster was placed a long time ago. Since that distasteful experience I vowed to be in control of my own finances and would rather lose my own money than have someone else lose it for me.
Aw, you’re my favorite weirdo, Mr. Tako! 😉 I love the lesson here – the more you learn, the more you can understand. And the more you understand, the more you’re able to make smarter decisions. Each of us is the only one that can make that happen.
As a side note, I actually met Kiyosaki probably close to 15 years ago at a seminar. It wasn’t one of the high-priced ones that try to sell you everything like it is today. I’m a big fan of “Rich Dad Poor Dad” and “Cashflow Quadrant” but only because they were eye-openers to me that there are other choices out there. That was a big catalyst for me getting to the place we are today. But I think it goes back to who you trust. If I didn’t just take it for a grain of salt and learn from it what I did and move on, I may have been sucked into some of the high-pressure seminars you’re talking about.
— Jim
The problem with financial advisors:
1) If they were really that good and could spot the best funds etc then they would be sunning on a beach rather than talking to you.
2) The correct advice for 99% of the people they advise pays no commission so does not get advised.
3) And if they are fee based then saying “just invest in index funds” seems so simple that people may well feel that was not worth the fee charged.
An example of (3) is my mother asked me my opinion of some advice she was following and I looked at the recommendations (lots of funds) and I said it was effectively a tracker fund plus fees. Why not just buy a tracker and eliminate the fees? Her reply was she did not understand investment so was uncomfortable buying a tracker – but implicitly she was OK buying funds she must understand even less! My Mum is pretty bright but has no interest in finance whatsoever and so this is where the advisors can clean up to make their bread and butter.
Trust in one’s ability to learn and grow is important in this financial journey. There are indeed many people and “advisors” who give poor advices. Identifying fakes are tough. Hence, there is a need to educate oneself in personal finance or investing to getting cheated. Thanks Mr Tako for writing this post.
I loved the book “The Simple Path to Wealth” by JL Collins, although it’s not on your recommended reading list. I wonder why- is it too simple? It is written for someone with no investing concept, hence I loved it and learned a lot from it.
I’ve heard of “The Millionaire Next Door”- I’ll have to check that out next.
Haven’t read it, but thanks for the suggestion.
“no one truly cares about your money but you”
So true. People get sucked in by financial advisors or financial “gurus” because they’re dangling the promise of riches in front of you. Anyone who says getting rich is easy is lying, had advantages, or got lucky. Get rich quick just means you’ll lose the money quickly too. Easy come easy go.
Have you see the movie “FYRE” on Netflix? That is the epitome of what can go wrong when people trust an “authority” and get promised things that can’t be delivered.