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14 Pieces Of ‘Helpful’ Financial Advice That Might Actually Be Harmful
With countless sources of information at our fingertips, it’s easy for people to believe they’ve become experts on a topic with just a few Google searches. When it comes to investing and managing finances, there’s certainly no shortage of advice being broadcast on television, the internet, podcasts and other media. However, some of this “expert” financial advice isn’t worthwhile, and some of it may even do more harm than good.
When it comes to learning sound financial practices, it’s important to be careful about whom you listen to and to weigh recommendations in terms of your unique circumstances. Indeed, some commonly repeated financial guidance isn’t broadly applicable and may even be untrue. To help you pinpoint some unwise generalizations to watch for, below, 14 members ofForbes Finance Councileach share one piece of “good” financial advice that may hurt more than it helps.
1. ‘Look for short sale opportunities.’
Short selling should only be done by sophisticated traders or should be better regulated. One example is the short squeeze of GameStop stock. Investors following WallStreetBets lost billions in just a few days, as speculative trading had GameStop stockhithighs of $483 and a low of $112.25 per share in one day—with no material changes in the company’s financial condition or results of operations. -Aviva Pinto,Wealthspire Advisors
2. ‘Act quickly!’
Used by millions, social media often drives an explosion in the consumption of unsubstantiated data. Unfortunately, the currency of credibility is often overlooked when it’s in competition with a presentation. Consumers should flee from any advice that pressures them to act quickly, whether that advice is related to income, appreciation or asset protection. There will be another opportunity to create wealth, just as there has been in the past. -Dr. Jason Jackson,IBS Institutional Capital an IBS Investment Bank sister co.
3. ‘Avoid all debt.’
The “experts” who claim you should avoid all debt are doing more harm than good. I’m not talking about debt used to purchase stuff, but debt used to buy assets that appreciate in value. Leverage is one of the most valuable tools of the ultra wealthy, especially when used to buy assets such as real estate. Now more than ever, with increasing inflation, borrowers win if they have fixed-rate debt. -Ben Fraser,Aspen Funds
4. ‘Hire multiple life insurance agents.’
Shopping for the right life insurance agent makes perfect sense. Having multiple life insurance agents shop for the same policy on your behalf is a huge mistake. It confuses the market and puts you in jeopardy of not getting the best deal. For example, the market may think you are looking for multiple $10 million policies rather than one. Pick your agent and let that person shop on your behalf. -Michael Seltzer,Vérité Group, L
5. ‘Attempt to time the market.’
Concern yourself with predicting businesses, and put your money into companies whose products the world will be using more of in five years, not less. Investing in successful businesses through up and down cycles is a sounder strategy than trying to time those cycles. -Gerry Frigon,Taylor Frigon Capital Management LLC
6. ‘Make journal entries.’
Journal entries have a purpose: tax or month-end adjustments. However, if you make modifications to Band-Aid a problem in your books, you need to figure out transactionally where the process is going wrong. Take inventory as an example. Your quantity on hand and value should tie to your balance sheet. If it doesn’t, you need to see what in the workflow is causing the problem. -Marjorie Adams,Fourlane
7. ‘Follow the FIRE movement.’
Sending the average individual—who may be risk-averse or resource-limited—to the FIRE (Financial Independence, Retire Early) movement may do more harm than good overall. For example, a professional may leave a lucrative job. This may work for a while, but an unexpected event could require them to return to their profession, which may be challenging. -Dr. Philip Fischer,Micro Macro Infinity
8. ‘Retirees shouldn’t own stocks.’
The biggest threat to retirees is the loss of purchasing power. Some people long for the 1980s, when 30-year treasuries paid 9% interest. Unfortunately, inflation was 13%— meaning wealth shrank by 4% a year. Only one security has proven itself over time: the stocks of well-run companies paying steady dividends along with modest capital appreciation. -Erik Christman,Oxford Financial Partners
9. ‘Pay off all debt.’
Paying off all debt can be bad advice for some consumers, especially if it is very low-interest debt or is tax-deductible. One can often achieve returns with their capital that are greater than the debt interest burden and can make an incremental profit over debt service. This is a concept that the average person often misunderstands. -Dan Cupkovic,ARGI Financial Group
10. ‘Diversify, diversify, diversify.’
If an investor doesn’t already know what they’re doing, pursuing diversification means they are adding in more factors they don’t understand. It creates more confusion and reduces investor responsibility. Diversification attempts to solve a lack of knowledge, but the solution to lack of knowledge is to gain knowledge, not to add more things that a person already doesn’t know enough about. -Jerry Fetta,Wealth DynamX
11. ‘Don’t miss this trend.’
“You should definitely invest in ‘X’” is the most dangerous piece of advice anyone could ever get. Most people who follow this advice end up investing during the height of a bubble and are typically left with a large loss when the market corrects, forcing the decision to sell and realize the loss or hold out and hope that it comes back. Chasing trends can be a very dangerous investment strategy. -Joseph Orseno,Tiltify
12. “Make sure to follow this budget.’
Trying to apply what you think you are supposed to do without taking into account how your own personal brain works can make budgeting harmful to your financial goals. On-again-off-again budgeting is like crash dieting—it puts you in a cycle that only leaves you feeling incapable. Make sure your saving and spending plan makes sense and is sustainable. -Faith Teope,Leverage Retirement
13. ‘Use cash reserves to pay off debt.’
While efforts should be made to pay off revolving debt such as credit cards as quickly as possible, you need cash reserves to handle emergencies. Telling someone to use all of their cash reserves to pay off debt does more harm than good. A much better way to pay off debt is to take a part-time job and dedicate those funds to paying down high-interest credit cards. -Jared Weitz,United Capital Source Inc.
14. ‘Your risk profile means you should do this.’
Let your financial life be a journey, not just another destination. Don’t settle for cookie-cutter advice! I feel that being placed in a box and being given the same exact advice as everyone else with a similar risk profile is unfair. Everyone’s situation is different. Many things have changed since Covid happened, and an understanding of unique circumstances needs to be built into the financial advice given and followed, and that advice should evolve over time. -Taruna Kanani,KB Tax Deviser CPA