Five Pieces of Free Financial Advice on Saving and Investing You Should Avoid

We all love free advice. Why pay for advice if someone is willing to give it to you for free?

Some advice will cost you little or nothing if it’s wrong. “You should wear these shoes with that suit.” “Try the catch-of-the-day. You’ll love it!” “I think you should turn left here.”

Other bad advice can be much more costly—both now and for the rest of your life.

This article focuses on free financial advice. We’ll tell you why five bits of so-called “wisdom” you’ve heard over and over again are wrong.

We’ll give you some tips on choosing sources of free financial advice you can trust, while avoiding all the dumb financial advice that’s out there.

Why Free Financial Advice Is Often Dumb Financial Advice

The person giving you free financial advice has no responsibility for what he or she is saying. I don’t care if it’s your neighbor telling you what stock you should buy, or some guy on the radio telling you what return you can expect to get over the long haul on your stock market investment.

Advice you read online, in the paper, in a magazine, or hear on the radio or television is generalized advice. It’s cranked out for a mass audience.

Nothing says it’s the right advice for you. Besides, free financial advice is usually based on conventional wisdom—what everyone just assumes is true, because, well, because everyone else assumes it’s true.

Sam Walton, the founder of Walmart, said:

Swim upstream. Go the other way. Ignore the conventional wisdom.”

Some financial advice you can trust

I know it’s weird for you to be reading some free advice that says watch out for free advice. I get that. But I approach this whole idea of giving advice differently from many others who offer free advice.

1. I’m a financial researcher and educator, not a huckster. I’ve spent the last 25 years investigating more than 450 financial products and strategies, in order to separate the truth from the myths. My goal is to help you discover sound principles for successful living financially.
2. I’m not concerned with ratings. I don’t have a TV or radio show with sponsors who want me to build an audience to hear their commercials.
3. Although I have a website, it doesn’t carry advertising for any other company.
4. I’m not a financial representative who gets compensated by selling you some financial product such as a particular mutual fund, annuity, or life insurance policy.

At the end of this article, I have three important questions for you to ask yourself about any financial advice or strategy—free or paid—you’re considering. These questions will help you choose who and what to believe, and you’ll know why you made that choice.

But first …

Five Pieces of Dumb Financial Advice Most Folks Think Are True—But They’re Not!

As Will Rogers, American philosopher and humorist, pointed out:

The problem isn’t so much what people don’t know, the problem is what people think they know that just ain’t so.”

Dumb Free Financial Advice #1: After you retire, your basic expenses will be much lower than when you were working

This reminds me of those perfect-looking models in magazines who’ve had every wrinkle, freckle and last bit of cellulite photoshopped away. It’s a lovely illusion, but the untouched reality is not so pretty.

In whose universe will your expenses be less as you age? Let’s break it down:

• Your utilities, groceries, and home and car insurance costs will not be less.
• Your healthcare costs will likely be more. In fact, studies show that a 65-year-old couple retiring now will need $315,000 just to cover out-of-pocket health-care costs during retirement, plus another $255,000 to cover one average stay in a nursing home.
• Now ask yourself: Assuming you’re working for a living, do you tend to spend more money on a weekday or on the weekend? On the weekend, of course! That’s when you do the fun stuff you didn’t have time to do during the week!But when you’re retired, every day is a weekend day! Chances are you’ll want to travel more. Maybe you’ll want to take in more movies. Shucks, maybe you’d like to have Date Night twice a week instead of once a month.

Do you think you’ll save because you won’t be raising children? I suggest you sit down for this: About one in ten grandchildren are living with their grandparents. And more than one in ten 24- to 35-year-olds also live with their parents.

So unless your dream retirement is sitting on the sofa watching TV and eating peanut butter sandwiches, don’t count on your expenses being lower when you’re older.

Dumb Free Financial Advice #2: To build wealth, you must be willing to accept risks

Are you old enough to remember the cigarette commercials of the 1950s? Doctors were promoting the health benefits of smoking! And just like in the 1950s, Wall Street today is promoting the financial health benefits of risky investments.

“The higher the risk, the more you can make!” Yeah, right. And the more you can lose!

The S&P 500 lost 49% from March to October, 2002. Many investors—myself included—had moved their money into NASDAQ tech stocks, which plunged 78% during that 2½-year period.

Then the S&P 500 peaked again in 2007—just a few years later. But by March of 2009, it had plunged 57%.

That makes two heart-stopping losses of more than 49%—just since 2000!

Try telling someone who had a “buy and hold” strategy—and who lost much of their life savings—that the way to build wealth is to take risks.

Is there a better way? Yes.

Ignoring the Wall Street hype, millions of Americans have implemented steadier, safer ways to build a healthy nest egg. One key is to invest only money you can afford to lose or are able to wait 20 years or more for the market to recover.

Dumb Free Financial Advice #3: You’ll come out ahead by deferring your taxes—and that’s one of the prime benefits of retirement plans such as 401(k)s and IRAs

Remember Wile E. Coyote, the Looney Tunes cartoon character? He’d come up with some brilliant, foolproof plan to catch the Road Runner, only to have it backfire and nail him every time! Deferring taxes is like sitting on a Wile E. Coyote ticking time bomb.

What direction do you think tax rates are going over the long term? In the short term, there’s talk of tax relief. But the long term may be a different story. If you’re like most people I talk to, you probably think tax rates are going up in the long term, which means if you’re successful in growing your nest egg, you’re only going to end up paying higher taxes on a bigger number.

Ugh. Talk about your dumb financial advice.

Dumb Free Financial Advice #4: Fees associated with mutual funds are negligible compared to the returns that are possible

Reminds me of the Tooth Fairy: “Just give me your tooth and I’ll give you a whole quarter!” Sounds like a pretty good deal. But if you give her a tooth every year for the next twenty-five years, you end up with $6.25, a mouth full of nothing, and a glass full of dentures on your nightstand!

Just like the Tooth Fairy, many mutual funds sound like they cost only “a little,” but in reality they can take a huge bite out of your savings.

According to the Department of Labor, fees of only 1% can slash the value of your retirement fund by 28% over the next 35 years. Think you’re not paying that much? Check again. Three of the largest mutual funds available to 401(k) participants have fees that range from 1 to 1½%!

If you still think the fees you’re paying on your investment accounts—even on your no-load mutual funds—are negligible, check out my fact-filled exposé, How Hidden Fees Are Sabotaging Your Retirement Plan.

Dumb Free Financial Advice #5: If you are carrying debt, your first priority should be to pay it off before trying to save money

Were you ever conned into sticking your fingers into one of those Chinese finger traps—those little woven straw tubes where the harder you tried to pull your fingers out, the more they got stuck? Well, that’s how this bit of so-called wisdom works.

Unless you already have a substantial stash of liquid savings, simply focusing on reducing debt leaves you vulnerable. Every emergency or unexpected expense will send you right back into debt, no matter how hard you’ve worked to pull yourself out. To get out and stay out of the debt trap, the trick is to make both savings and debt reduction a priority.

There you have it. Will Rogers would call those “Five Pieces of Free Financial Advice People Think They Know That Just Ain’t So.”

So Where Should You Turn, for Financial Advice You Can Trust?

How do you know if you should pay attention to a so-called expert—or run in the other direction?

“Step back and take time to think,” writes Dr. Melanie Greenberg in Psychology Today. “Beware the hard sell.” When it comes to sizing up the person you’re listening to, “ask yourself what this person is really about.” Greenberg also talks about using your “wise mind”—using both logical thinking and emotional awareness.

And don’t make any financial decision based on who shouts the loudest!

When you step back and take time to think, you may realize that most financial advice falls short. People follow dumb financial advice even though it’s dumb—because so many others are already following the advice.

Don’t follow the majority just because it’s the majority. The majority doesn’t know any more than you do. The majority once believed that the earth was flat and that man would never fly.

As Mark Twain noted,

Whenever you find yourself on the side of the majority, it is time to pause and reflect.”

Three Questions to Ask Before Following Any Advice—Particularly Free Financial Advice

Ask yourself three questions when considering whether or not to follow someone’s financial advice:

1. Will this advice give me peace of mind and let me sleep at night?
2. Will this advice help me get where I want to go without taking unnecessary risk?
3. Will this advice allow me to be in charge of my money and my financial future?

Sound financial advice you can trust gives you a Yes! answer to each of those three questions.

Now Here’s Some Free Financial Advice You Can Trust: Bank On Yourself

• The Bank On Yourself method has a 160-year history of consistent success, day in and day out
• The safety of your money—and its growth—are guaranteed by some of the most financially strong institutions in the world
• The Bank On Yourself strategy has hundreds of thousands of raving fans who have tried it, tested it, and proven it to work in their own lives

Ten reasons to Bank On Yourself:

1. When you Bank On Yourself, you—not the government or some financial institution—are in control of your money
2. You receive a predictable and guaranteed increase every year
3. Both your principal and your gains are protected during market corrections
4. Your results do not depend on your luck, skill, or guesswork
5. Your money grows more efficiently every year
6. You can use your money without selling your assets
7. You can rely on your plan for a predictable income at retirement, or any other time you want
8. Your plan can “self-complete,” so your family or heirs also receive the money you had planned to save
9. Your assets are generally protected from creditors and lawsuits
10. You can know the minimum guaranteed value of your plan when you’re ready to retire—and at any point along the way