I have hosted retirement planning workshops and have met with families one-on-one for almost 20 years. It has been an amazing experience to educate people, working with them hands-on to reach their retirement goals and objectives. But the last 20 years have also seen the rise of the Internet and a lot of free, reasonable-sounding information.
The cyber gold rush today seems to be personal finance and finance blogs; everyone with access to the Internet has the solution to your financial woes. The amount of producers of financial content is staggering and can include:
- Journalists at news organizations
- Financial professionals with a blog
- Financial firms
- Banks and Credit Unions
- Podcasters and online radio show hosts
- Bloggers ranging from the hobbyist to the professional
I searched for information to show how many financial blogs there are online and could not any find concrete data. Rockstar Finance lists over 1500 blogs in their directory, and given the size of the more popular personal finance networking groups, I suspect the real number is some magnitude larger than what Rockstar has listed. Many finance blogs offer well research advice and compelling anecdotes of the author’s personal financial experience, however, today we are going to examine why the information you’re reading is wrong for YOU!
The average blog post is 1000 words and most newspaper articles are not much longer that. Bloggers and journalists operate on the assumption that a reader will spend a few minutes reading a post before losing interest. I couldn’t write 1000 words on why I feel hamburgers are superior to burritos, let alone explain or debate the massive body of prevailing financial research within that word count. The nuances of complex tax and financial matters can rarely be condensed into a few minutes of reading. Similarly, there are likely to be exemptions, caveats, or cautionary tales more applicable to your situation that didn’t make the cut.
2. Outdated Information
Retirement planning is constantly affected by changing tax rules, changes in social security benefits, and new regulatory standards. As an example, the GOP tax bill upended what we previously knew about tax planning, and created new opportunities as well as new challenges. For example, in their rush to pass the tax bill, the GOP expressed the need to revisit and amend the law during the year. Several states have indicated an eagerness to adjust how they collect income and property taxes as a result of the bill. It’s highly likely the IRS will clarify portions of the law as aggressive taxpayers attempt to exploit specific provisions.
Additionally, the last several years we have seen changes in health insurance, financial regulation, and IRS rules, and the political elite has promised more changes. The only thing we know for sure is relying on outdated information can be costly.
3. Authors’ Claims May Be Exaggerated
“The greatest trick the devil ever played, wasn’t that he didn’t exist, rather was that he was red with spiky horns and a tail.” Charles Baudelaire
We all know to ignore the Nigerian prince or UK lottery, but what about the less prominent financial pied pipers that would lead us astray? There is no shortage of authors claiming they have paid off an enormous amount of debt in record time or reached financial independence at a young age. They are willing to give you the keys to the kingdom, assuming, of course, that you sign up for their newsletter, purchase their eBook, or shop at their Amazon shop. How certain are you that they achieved these results? Why would someone who reached financial independence at 40 spend their retirement promoting eBooks, opposed to living the dream in some tropical locale?
4. Social Proof
No one wants to dine at an empty restaurant, so if you see a packed restaurant the assumption is the food must be good. That’s Social Proof. In fact, social proof is perceived to be such a powerful sales tool that a multimillion-dollar industry employs ghostwriters to sell positive reviews. Celebrities have been caught buying social media followers to build their social proof. Similarly, authors can hire influences and promoters to help ensure their content goes viral. As a result, we cannot tell from an author’s following if their success is attributable to providing excellent advice that works or rather a function of them have excellent marketing skills.
5. Lack of Practical Experience
“In theory, theory and practice are the same. In practice, they are not” Albert Einstein
I entered the financial industry when I was 18. I had received the best training in the industry and had the benefit of working at the firm founded by my parents.
At the time, I was convinced that experience didn’t matter, as long as you had the latest education. Looking back, nearly 19 years later, I can see how much my feelings have changed working directly with the public: I’ve seen and learned what advice works for them and what doesn’t. Every individual has unique concerns, goals and emotional hang-ups. Advice that may seem relatively mainstream could cause someone else’s sleepless nights.
6. Observation Bias
Observation bias is the tendency to see what we want to see and to ignore the rest. Every author has a unique way to approach a situation, to apply a specific investment strategy or even have specific research method they use to research a topic. While these techniques and plans may be useful for the author, it doesn’t guarantee it will be adequate for you, or your family. For every individual that struck it rich with [insert strategy of choice], there is someone who has failed using the same approach.
7. Bad Ideas Are Easy To Sell
There is a disconnect between the advice that people want to read and the advice they should actually follow. Case in point: Newt Gingrich and his moon “sex” base. As the county was begging to recover from the great recession, it would seem that proposing to spend billions of dollars on a moon base for honeymooners to experience weightlessness would be political suicide. Rather than getting laughed off the stage in 2012, Newt Gingrich received thunderous applause, and in 2015 Jeb Bush said Newt’s idea was “cool.” We see in politics the more outrageous, the idea the more people seem to love it.
Consumers don’t just make this mistake when voting in the polls; they make it when voting with their wallets as well. Headlines like, “Pay Down Your Debt Slowly but Surely” and, “Build Up Wealth Consistently and Safely Over Time” are unlikely to receive much fanfare. I once asked a blogger why he hated this strategy and his response was “I don’t hate it, but decisive headlines get the clicks.” As a result, much of the financial content produced is written for consumption, not necessarily to provide actionable advice.
Points to remember:
There are hundreds of finance-related blogs available to the consumer with many others entering the digital world as we speak. Determining which is best for you is a tough call. To determine if the financial advice you are reading is ideal for your situation, schedule a no-obligation call at this site or email me at Michael@yourmoneygeek.com
Cheers to better wealth!