In this guest post Hunter Nuttall talks about the challenges of giving financial advice. Although well intended, some advice can be ill suited for the person or just plain wrong. It is something we should all be aware of whether we are giving advice or taking it. If you like this post and want to read more click here to subscribe to Hunter’s RSS feed. There is a link at the end to a free ebook too.
Have you ever had a well-meaning but ill-informed friend give you financial advice? I certainly have.In January 2003 my friend asked me how the stock market was doing. I said, “Well, last year was really bad, but the worst of the bubble burst might be over…” She interrupted and said “I don’t care about last year. How are stocks doing this year?” I explained that since it was only January, we really couldn’t say how the market was doing this year until more time had passed, because short term bumps don’t mean anything.She said, “I heard the stock market was down yesterday. You should take all your money out of stocks and put it someplace safe. Have you checked the interest rates at the credit union?” She meant well, but I knew nothing good was going to come from that conversation.
I changed the subject as soon as I could. I knew I couldn’t get her to understand that at the age of 27, I couldn’t care less about the day-to-day (or even year-to-year) fluctuations in the stock market. I cared about the long-term trend, and I wasn’t going to take all my money out of stocks because of her wild guess that stocks weren’t going to do well.
Do you remember what the stock market did in 2003? It had one of its best years in history. The S&P 500 (U.S. large caps) returned 29%, the MSCI EAFE Index (Europe, Australasia, Far East) returned 39%, and the Russell 2000 Index (U.S. small caps) returned an amazing 47%! But how is that possible? I mean, my friend said the market was down one day in January, so it was a terrible time for stocks. Oh yeah, she was wrong.
This is just one example of when a good person has given me bad financial advice. No matter what you do, there are bound to be countless people telling you that what you’re doing is wrong. I guess it’s human nature. We all think we know something, and we all like to share our thoughts with others.
I’ve certainly given unsolicited financial advice to people before. I try not to do it, but when I see a 25 year old putting 100% of his 401(k) contributions into a money market fund, it’s too painful to just sit there and watch it happen. So I don’t blame people for giving advice that they think is helpful. But you don’t have to blindly follow someone’s advice just because you like them. What’s right for one person isn’t necessarily right for someone else, and some advice is just plain wrong.
If you disagree with someone, but they know what they’re talking about, you can explain your strategy or ask a follow-up question to have a friendly discussion. If the person is just passing along information they’ve heard, and they don’t know what they’re talking about, just thank them for the tip and move on. No need to start a fight that both of you will lose.
Has a friend ever given you bad financial advice? How did you handle it? Please share your stories in the comments.
Hunter Nuttall writes about personal development on his blog Hunter Nuttall . com | Stop sucking and live a life of abundance. He recently released his free ebook The Zen of Blogging.