Plan Performance

THE Wealthier + Wiser Blog

Helping you better understand your money so you can reach your goals

The dangers of generic money advice

money, economy, fear, greedEveryday we’re inundated with messages from the media about how to invest, how to save and what to do with our money. But is that advice best for your financial situation? Keep in mind, the media creates stories to get your attention so you’ll stay tuned through commercials or see ads online.

All that glitters is not gold

For the most recent example of this, you only need to look to the gold craze. From 2005 to 2011, the price for gold went up about 300%. The media could not talk about it enough. Before long, stores were advertising cash for gold, infomercials popped up selling gold coins and stories about governments buying gold in bulk dominated the media.

All that hype led to approximately a 40% decline in gold. That means people who were racing to acquire gold in vast quantities have lost more than a third of the value of their investments. This highlights the overarching danger of generic money advice and trying to jump on a trend that’s dominating market message boards.

This information tends to be working well right now (people almost never speak of investments they made that are losing money). People don’t get put on TV because they’ve made a series of poor recommendations. The media features people that have made recent correct forecasts about where things are going and it appears to look right.

Financial advisor cuts cord, saves $68,000 in retirement

You’ve probably heard of Suze Orman or Dave Ramsey. Both provide advice aimed at improving the masses’ finances. Fundamentally, no matter who you listen to, the principals they’re trying to get across are the same – spend wisely, invest as much as you can and be patient. Those lessons are valuable, yet trying to craft your plan from their shows likely will lead you down the wrong path. Like snowflakes, no two financial situations are exactly alike. Everyone really needs their own plan.

Fear and greed

The biggest common investment mistake you want to avoid is hearing something on TV and jumping into it without doing your homework. Ask yourself:

  • Am I buying this investment at or near an all-time high?
  • Is this a long-term trend or a fundamental shift in the way business is being done?
  • How does this investment or advice trigger the fear and greed inside of me – let’s unpack exactly what this means.

The stock market moves on cycles of fear and greed. When fear takes over, investment prices can go down and certain areas go down exponentially. During greed cycles, investment prices can soar to heights that don’t make sense. Therefore, it’s important to diagnose whether the investment you’re looking at is in a fear or greed cycle.

Financial freedom

Despite the specific advice you hear, we recommend these goals for everyone:

  • Go through and understand your annual expenses versus your income.
  • Save as much as you can as often as you can.
  • Invest in lasting trends that make sense.

Hopefully this will help you stay on track to achieve financial freedom.

Michael Carlin, AIF®