Recently, I was invited to contribute to online articles published by MoneyGeek, which digitally prints information on personal finance topics for Main Street folks. I have had the pleasure to contribute about a dozen times in the past. My newest pieces pertain to 0% APR credit cards and life insurance as an investment.
Here are the links to the respective articles:
My overall message to consumers of financial products (and financial advice) is to use caution. Perhaps more so in the financial world than any other, large institutions and the smartest individuals have already figured out arbitrage opportunities and stealthy, sometimes morally questionable, moves to make that garner high yields. The overall conveyance of information, therefore, is largely efficient similar to the stock market. While there can be some lag between these moves and any legal repercussions, often you only hear about these dubious techniques when the mainstream media report on them, and by that point, it's usually too late to partake (and why would you if the big players are being spanked by regulators for said behavior).
Zooming in so that we are more down to earth, I want to take this opportunity to re-raise the flag of caution to which I alluded above. There are many influencers out there who feign to take a neutral view towards personal finance when it comes to relaying information to the wider public. Even the most well-intentioned media personality, #advicer, or platform occupier can and often do disseminate educational content without realizing the bias that lies within. Sometimes, their words of wisdom are warranted yet they still resonate uncomfortably usually due to an absence of full transparency.
The financial planning industry is fighting for its soul as regulators, practitioners, academics, consumers, and many other parties vie for policy change and best practices that suit themselves all while claiming to do what's in the best interest of the investing public. I believe more weight should be given to words spoken that aim at the truth. Everyone in this fight must take great care that there is no appearance of deception even when none exists.
An example: "Time in the market beats timing the market."
The context: Timing the market is done every day by professional traders, people who speculate on the value of securities (stocks and bonds) and their derivatives (like options). How well these people fare is not the point--rather, that many people around the world do this is important to acknowledge. These people are called traders. By contrast, the rest of the population who possess an interest in the stock market are called investors. These people seek to contribute regularly to their retirement and brokerage accounts with the hope of living life without the requirement of working at some point in the future. The initial quotation--"Time in the market beats timing the market" is usually aimed at investors who try to be traders. Again, it is well-intentioned and, I would add, is correct. That is, if you are an investor, you should not pretend to be or act like a trader.
So, what's wrong with this? It is not so much the words that are being spoken or written but in their presentation. When advisors/planners/whoever tell you to stay in the market lest you miss out on huge potential gains, they rarely, if ever, admit that they benefit from you following their suggestion. Just like any market, greater selling leads to lower prices while greater buying leads to higher ones. If the public panics and many people try to convert their equity positions to cash, those who remain in the market suffer in the short term because the paper value of their portfolio falls. Again, I think for the vast majority of investors in the vast majority of cases, it is correct to stay invested. However, failing to disclose that the conveyer of this information personally and directly benefits from this only casts further doubt on the genuineness of the industry.
Correcting this begins with an admission that our blog posts, podcasts, newsletters, et al. are not completely altruistic. There is no sustainable compensation model that is 100% in the client's best interest, no true guarantees, and no riskless choices. Everything comes at a price, and often that takes the form of benefitting another party in the financial web.
Fortunately, the industry seems to have moved beyond the point where hired drivers are trusted more than financial advisors. However, there still exists a lot of distrust surrounding the industry. Generating public service announcements under the guise of pure benevolence perpetuates suspicion and wariness toward financial services.