If measured by volume (either definition), the vast majority of investing advice out there is terrible. In the spirit of David Letterman's Top 10 Countdowns, here are the ten worst places to get investing advice.
# 10 Unsolicited Emails
Have you looked at your email junk folder lately? Aside from ads for Viagra, genital enlargement pills, and x-rated material, there are plenty of “hot stock tips,” usually for penny stock pump and dump schemes. Trust me when I say that if somebody truly has a hot stock tip, they don't send it out to 10,000 people they don't know.
#9 The Typical Internet Forum
There are hundreds of internet forums out there dedicated to investing. Frankly, the vast majority are terrible, with the blind leading the blind advocating all kinds of non-evidence based methods of investing. Stock picking, market timing, options, futures, FOREX etc etc. Are there good forums out there? Of course. These include the Bogleheads (primarily index fund investing), Bigger Pockets (primarily real estate) and the WCI Forum, WCI Facebook Group, PoF Facebook Group, PIMD Facebook Group, and WCI Subreddit. There are probably a few other decent ones out there, but remember the barrier to entry to getting on the internet and sounding authoritative is pretty darn low (just look at me, right?)
#8 The Doctor's Lounge
If the majority of investors in any given enterprise are physicians, there's an awfully good chance it is a bad investment. Are there exceptions? Sure. But double your regular due diligence to make sure. However, over the last couple of years, I've noticed that doctor's lounge investing conversations, both in real life and online, are showing signs of improvement. I hope I'm responsible for some of that.
#7 Your Family or Friend Who Recently Started With a Financial Services Company
Most people who sign up with a financial services company wash out after a few months. They're simply not cut out to be salesmen. However, one benefit of this high turnover rate is that the company gets the chance to sell to the family and friends of these wash-outs. Don't be the mark.
#6 Anyone You Attend Church With
Now, I go to church and you may also. But it's rather unbelievable just how many investment scams are run through churches. Churches are a lot like family, and you tend to be vulnerable and trusting with those who share the same beliefs and values. Investing, however, is best done with the brain, and not the heart.
# 5 Your Stomach
Just as your heart gives bad advice, so does your stomach. Cold, hard logic is an investor's ally. Excitement, greed, and fear, especially the kind that leaves you lying awake at night with heartburn, is an investor's enemy. Don't take investing advice from your stomach, especially during a bear market.
# 4 Your TV
There is almost no useful investing information on television. TV is great for current events, but the library is probably a better source of solid investing information. The stuff you really need to know just doesn't change that often. A long-term investor doesn't care what the S&P 500 did this month, much less today, and certainly doesn't need to see it go up and down in real-time.
#3 Your Insurance Agent
I know lots of insurance agents. They're great. They know all kinds of details about types of insurance I need, such as term life, disability, and malpractice. However, their training is in insurance (and mostly in how to sell it), not investing, and is primarily provided by their insurance company. Insurance-based investing solutions, such as annuities and cash value life insurance, have serious downsides, and commissioned insurance agents (that's all of them, by the way) are likely to gloss over these downsides, if they understand them at all.
#2 Your Local Brokerage Shop
There are all kinds of local places for you to get investing information. For some reason, they usually seem to have two names, such as Merrill-Lynch, Edward-Jones, Waddell and Reed, Raymond James, Morgan Stanley Smith Barney (4 names must be better than two right?), or Wells Fargo. However, I also include local offices for more reputable firms, such as Fidelity, T. Rowe Price, and Charles Schwab. The issue is that these offices are hotbeds of commissioned salesmen. They don't make money unless they sell you something, and taking advice from someone trying to sell you something besides their advice is usually a bad idea. (Yes, I am aware that some of these firms also offer a fee-only advisory service usually based on an AUM fee.)
#1 Your Bank or Credit Union
You've trusted them for years. You know the tellers by first name. You have your mortgage there, and perhaps even a car loan. They've had your checking account for 15 years. When it's time to invest, why wouldn't you trust them for advice? They have IRAs, right? Well, here's the reason. The guy at the investment desk in your local bank is also a commissioned salesman. To make matters worse, he's probably an under-educated, captive salesman who only sells that particular bank's investment products, which are likely high-load, high-ER, poorly-performing, actively managed mutual funds or worse, poorly designed insurance-based products. The worst “professionally designed” portfolios I've ever seen come from “the investment guy” in your local bank.
So, where can you go to get trustworthy advice? If you're willing to pay for it, you can go to a good fee-only advisor. Although the price is often quite high, there is no price too low for bad advice. You can limit the damage to your wallet by using an advisor charging an hourly rate to give you a second opinion on a portfolio you design yourself. You may also find an advisor with a reasonable annual retainer fee or Asset Under Management charge.
There are dozens of high quality investing books out there. If you're too cheap to purchase them, borrow them from the library. The latest ones aren't any better than the ones that came out 5 or 10 years ago. In fact, the older ones are better because you can then see if the author knew what he was talking about.
As mentioned earlier, there are reputable places on the internet where high-quality information can be found. In general, the less anonymity and the more longevity of a forum or blog, the better. Surprisingly, I've found some excellent investing information on the websites of the more reputable mutual fund companies such as Vanguard, DFA, Bridgeway, Fidelity, and T. Rowe Price. While I've been disappointed at articles I've seen in even reputable financial publications such as The Wall Street Journal, Forbes, and Money, there has been a vast improvement over the last five years, and these publications were always heads and shoulders above the advice found in other publications.
High-quality investing information and advice is out there, but if you don't know how to recognize it, you're likely to fall prey to the far more common bad advice and drown in the sea of useless information.
What do you think? Did I miss any bad sources of investing information? How about some good ones? Comment below!
I’ve been following your blog closely for years, and appreciate your posts greatly. I have to say, though, I chuckled as I read this one. As I scroll down for more about how there are so many people out there offering services that simply take from you without really giving anything back, I see an ad for an FP firm and another wanting me to invest specifically into 3D printing because the stocks are going to soar. I only point it out to be a little bit teasing, when really I say good for you for earning advertising dollars. But, I do wonder, do you vet the advertisers you allow on your blog? I think it is an interesting ethical scenario… Whether or not to let anybody who wants to pay place their ad on a site aimed (often) at educating people on how not to get taken…
I had to laugh when I saw Scott Adam’s Dilbert Cartoon today:
http://www.dilbert.com/2014-12-15/
As far as the ad content, I do vet the privately placed ads (such as FPL that offers high quality investment management for as little as $1000 a year) but cannot regulate the ads you see via Google Adsense which match content to the site and your browsing habits. More info here: https://www.whitecoatinvestor.com/advertise-here/ and at the bottom of the page.
Well said. Great advice but the ads on the side are distracting from the very thing he is promoting.
I had a guy knock on my door the other day selling annuities. I was like who in their right mind would by an annuity from some random stranger that knocks on your door? Apparently some people do I guess…
Awesome post. Hopefully this post is followed up by “The 10 Best Places To Get Investing Advice”!
Broke people. I had a classmate in my MBA program who suggested we should all buy the latest version of the Nintendo Wii in the fall with an eye to sell them at significant markup in the week or two before Christmas. This lady was subsisting off GI Bill benefits and child support payments and described a variety of financial difficulties. Had she actually gone through with that plan she would have been stuck with a video game system not worth twice what she paid for it, as she had hoped.
Great list! I have heard more bizarre stories and schemes coming from churches and doctor’s lounges than any other source!
READ RANDOM WALK DOWN WALL ST-it will teach the ropes
Not as your first book, though – Random Walk is not a beginner book. Loved it as book 10-ish.
Everyone should definitely read it – just not as their first book!
Here is something to think about….I often sit and listen to doctors talking about what/how to invest etc. Probably 90% of the time I hear something about whole life amongst many other things. I always want to tell people to just start by reading your blog or a good book. Herein lies the schtick. If I butt in to the conversation then I am the schmuck giving unsolicited advice. But if I don’t, then I feel bad for letting them continue to piss their money away. Most of the time I just let them go on about their business UNLESS they ask me….Then I start in and they prbably get sick of listening to me but at least I will get my point across.
MY feelings exactly John. I have been I the exact same position with exact same conundrum.
Beware [email protected]…The nice lady at the bank.
Most docs are clueless about personal finance. That’s why many cannot retire comfortably and work beyond their years. Many think they are TOO SMART and can outperform the mkt and gamble like fools
The worst place to invest is with a thief. A lot of physicians have invested with GL Advisor over the years and I think you made a post about them also a while back. Anyone who is invested with them should make sure they didn’t lose money in this scam! http://www.fbi.gov/boston/press-releases/2014/harvard-trained-mutual-fund-manager-charged-with-securities-fraud
These things make me sick! Anyway, good post.
Wow! I hadn’t heard about that. Very interesting.
I am not a GL employee or client. However, I have not heard any bad stories in regards to their debt management, particularly their debt management during residency.
I don’t know anyone who “invests” with them, only people who use them as their debt expert.
This was a side fund they had going, mostly separate from their debt management and other advisory services.