Many individual investors spend time reading a variety of financial websites, blogs and articles and listening to podcasts and finance-focused TV shows. While it’s wise to educate yourself on financial best practices and trends, not all of the “expert advice” out there is reliable.
As leaders in the industry, the members of Forbes Finance Council know all about the questionable financial advice that can lead investors astray. Below, 11 of them share widely circulated counsel that may do more harm than good.
1. ‘Always chase the hottest fad.’
We do not work with individuals, we represent companies. But they share a common challenge—chasing the latest or hottest financial fad (e.g., GameStop) without realizing the long-term picture. Very few investors make money in these hot investments—most are losers. It is important to increase your financial awareness, but following fads can lead to losses. – Jennifer Palmer, Gerber Finance Inc.
2. ‘Stick to the public markets.’
You don’t have to settle for low yields or rely on principal drawdowns for a secure retirement. Many investors are told it’s risky to invest outside the public markets, but less volatile investments with higher yields, resulting in better risk-adjusted returns, are attainable if you know where to look. – Ben Fraser, Aspen Funds
3. ‘Annuities are expensive and ineffective.’
When consumers read or hear that “annuities are expensive” and “don’t offer market-like returns” from the investment community, it has the potential to derail their retirement plans. Often, investment professionals don’t realize that annuities’ primary value proposition is transferring risk—that the purchaser will live in retirement too long—not necessarily to outpace mutual funds and other investments. – Sheryl J. Moore, Wink, Inc.
4. ‘Avoid debt at all costs.’
Not all debt is bad. Borrowing money, especially if it involves income tax benefits, can be beneficial when it comes to achieving what’s most important to you. Don’t reject borrowing funds out of fear or misgivings. Instead, make informed, intentional decisions based on your unique circumstances. – Sandi Bragar, Aspiriant
5. ‘Real estate will always go up.’
I’ve often heard financial advisors tell clients they should purchase a very large home because “real estate’s always going to go up.” What we should be doing is purchasing the smallest house that we can to fulfill our hopes and dreams. This frees up more cash to invest in other assets. I feel that the notion that we must buy massive homes to see greater returns does more harm than good. – Justin Goodbread, Heritage Investors
6. ‘Maintain a mortgage for the tax benefits.’
It drives me crazy to hear people being advised to keep a mortgage on a primary residence in place for either tax benefits or investing due to low-interest rates. The math is accurate, but the risk is astronomical for a family. With an investment property or vacation home mortgage, I may potentially be on board, but for your primary residence, pay it off as soon as you can. – Evan Kirkpatrick, Wendell Charles Financial
7. ‘Focus on paying off your mortgage fast.’
Many people are laser-focused on paying off their mortgage. While this is a noble goal, for many individuals it can be a double-edged sword. Often, these same people end up house-rich and cash-poor and ultimately need to apply for a home equity line of credit or a cash-out refinance because they need money. Not all debts are created equal, and you need to consider the total picture before paying off your mortgage. – Joshua Strange, Good Life Financial Advisors of NOVA
8. ‘Diversify, diversify, diversify.’
More does not always equal better! Sometimes less is more. We have seen over-diversification be the cause of lackluster performance. Many promotional materials are simply designed to make sales. As investors, we want to efficiently allocate our resources to enable us to achieve financial success—sometimes, less could be better. – Mark Paller, Paller Financial
9. ‘Always pay yourself first.’
“Pay yourself first” may cost someone valuable tax deductions, and “save for retirement” can be a disservice to someone paying down high-interest debt. Further, “keep costs low” is misguided advice for someone with complex needs. The road to hell is paved with good intentions—and blanket advice. – Alexey Bulankov, Mechanics Bank Wealth Management
10. ‘You can find all the news and advice you need on social media.’
Recently there has been a lot of buzz around the retail investor group on the social platform Reddit. There is certainly value to be gained from a public network such as Reddit; however, you should know that these users are not vetted by Reddit as credible sources. While social media creates an opportunity for a community to grow together, there is always the risk of manipulation or misinformation. – John Green, Nada Holdings, Inc. (“Nada”)
11. ‘Trust me, I’m a celebrity.’
Many individual investors often rely on “celebrity investors” in the media for making their investment decisions. This can be very dangerous, as so-called “celebrity investors” are not always right. Further, they might exaggerate certain trends or have self-interested reasons for promoting specific financial products. – Kristy Kim, TomoCredit