248 | The Worst Financial Advice on the Internet

Hilary Hendershott: Well, hey, money lover. So, seven years ago, I recorded an episode inspired by all of the eye-rolling I was doing when I heard some of the financial advice touted as expertise out there on podcasts. I’d be sitting in my office or my car completely alone going, “I cannot believe she just said that,” or, “Yeah, you should totally do that… if you want to go broke.” So, I grabbed my mic and shared all of those thoughts back then in 2017. And today I’m back with an update because, unfortunately, I have not stopped eye rolling. But there’s still so much bad advice out there and I want to make sure you know what to look out for.

So, this time, I’m widening my scope beyond the world of podcasts to the ridiculous financial advice nonsense that people spew all over the interwebs, the internet, the TikToks, the podcasts. Anywhere I heard it, anywhere I read it, I’m sharing it with you. Every day, I shake my head when I read or I scroll by or I listen to, I hit delete on an email in my inbox, some crap that’s confidently touted. It can be on a blog or a podcast or Instagram. It’s everywhere. And usually, but not exclusively, it’s doled out by dudes. I often hear these guys who are full of unrequested and flat-out bad advice referred to as Brads and Chads.

But to be clear, there are definitely people of every ilk who are high on their own armchair expertise, but low on evidence to back up their claims about things like stock picking, banking advice, tax strategies, and of course, more. This expertise seems to come in every size and flavor as, of course, do the often poorly informed so-called experts doling it out. But for the sake of today’s episode, we’re going to call our ill-informed advice givers Brad and Chad. So, who are Brad and Chad? I’ll be honest, I had to look up the whole Brad-Chad trope thing just to make sure I was getting it right.

So, according to my research, a.k.a. Dictionary.com, we’re dealing with a stereotypical alpha male who is attractive, successful, entitled, and overconfident. You may have met one before. These folks think they know better than you do, and sometimes that they know everything. You can tell by the tone of their voices that they think they’re smarter than you, and they probably said, “you should just stop your little internet research project about how to manage your money” because, you know, he’s got you. You can get back to what you should be doing, which is like cardio and watching The Bachelor, right?

In fact, the more I hear the phrase, the more I can see how it fits with the subject matter that we’re diving into today. And that’s why before diving into the worst financial advice I’ve come across on the internet lately, I had to take a minute to introduce you to the stars of today’s show, our armchair money advisors, Brad and Chad. Now, don’t get me wrong, I myself can be swayed by armchair expertise on topics I’m not immersed in every day. I admit I’ve purchased fat-burning pills and fallen prey to well-targeted Instagram ads. Truthfully, it’s true, I have. I’m embarrassed about it but also now I know better.

So, I’m doing for you today, financially speaking, what I would have loved to have done for myself when it comes to snake oil sales in other industries. I hope this episode will help you learn how to spot the red flags of armchair advisors and learn to lean into the green flags of evidence-based practices, in this case, doled out by a fiduciary financial advisor who has your best interests at heart. That’s me. One more thing on our Brads and Chads, any similarities to another person, real or fictional, is a total coincidence. And if you’re listening to this podcast and hopefully your name isn’t Brad or Chad, but if you’re just listening, you can rest assured that you are not one of the Brads and Chads that I’m talking about today.

Finally, before we get started, you do have to remember that there are two worlds of money. There’s one that’s happening in the numbers, the actual bits and bytes that are in your bank accounts and investment accounts. And then, of course, there’s the world of money that’s happening in your head. That second world, what’s happening in your head, is the source of your mindset and behavior as an investor. And that is the biggest thing that impacts your experience of investing. Really, like your whole financial world happens in your head. It’s because of what our minds do to us when it comes to money and investing that baseless advice has an opportunity to take root and grow into rotten trees.

We’re all subject to some cavewoman thinking and feeling about money, even me. You know, the wealthiest people I know really don’t like watching their balances fall when stocks go down. It’s true. I can verify this. But you can learn to control the actions you take. In other words, you can engage your prefrontal cortex and be an educated adult, maybe with a guide at your side about the choices you make. But you probably won’t ever 100% stop your cavewoman thinking, and that’s okay. So, stocks and investments, no matter how you slice it, are external to you. That’s the stuff that happens outside your head.

And while, of course, you can select the stocks that you hold and you should control the levels of risk in your investments, the macro movements of stocks are outside your control. There is no free lunch that lets you have returns without risk. There’s no lesser-known ETF that takes your account balances up without temporary downs. I promise you, it does not exist. And really, therein lies the rub. Because people love stock market ups and people hate stock market downs. We always will. And that leaves us all vulnerable to the Brads and Chads of the world. A good portion of what I talk about on the show is designed to encourage you to sign up for the roller coaster ride that is investing.

And I know that metaphor of a roller coaster ride might not sound enticing. I’ve been told not to use it, especially if you’re at a point in your life when you’re highly motivated by security and taking care of your future self. But if that is you, my friend, unfortunately, that kind of thinking really can make you the perfect little garden for the kind of bad advice that can take root and then take your money. Because this is the kind of advice that tries to persuade you that you can sometimes have rewards without taking risk. I mean, let’s be real. If you’re looking for a life partner and I said, “Hey, why don’t you date this person? It’s going to be a real roller coaster ride.” That really is not much of a selling point if you want to make a commitment that you can trust for the long haul.

But unlike a toxic relationship, the roller coaster ups and downs of the stock market happen on graphs. They don’t happen in your actual day-to-day life. We’re not locking in losses every time the market tumbles. You can see those dips and dives when you’re zoomed way back, but you’ll also be able to see that growth happens slowly and consistently over time. The longer you’re in the market, especially if you’re in there with an advisor you trust, the more you adjust and learn to tolerate the market fluctuations. That really is your task as a sophisticated, prudent investor. During the financial crisis and even at the beginning of 2020, when the pandemic set in, it felt like the drop was never going to end. But it did. And now look where we are. We’ve seen multiple double-digit returns in global stock portfolios since those events, and that’s what I mean by roller coaster rides.

The goal of the most savvy and smart fiduciaries is to get their clients, our investors, to stay in the market, to disregard your learned emotional tendencies, and stay invested when the market dips so you don’t miss the eventual upswing. Okay. So, with all that in mind, let’s get into it. An updated list of the worst financial advice on the internet to remind you of some of the baseless expertise shared online that remains as ridiculous as it was seven years ago, and share a few new nuggets of fool’s gold that I can’t help but call out. We’re going to start at number seven and countdown to the worst offender. So, buckle up, buttercup, and enjoy the ride.

Number seven: Bucket Investing Strategy Brad. So, let’s get started. We wheel into the room our first armchair advisor, Bucket Investing Strategy Brad, and the first of the worst financial advice I’ve heard as a CFP. It was a while back. I was listening to a podcast, and our pal, Brad, was going off about how people should have what he called a bucket investing strategy. He said, “No way. You don’t need to pay a financial advisor. You can just use your own psychology to your advantage. Just build systems to trick yourself.” I do love it when someone thinks he’s smarter than a whole industry of professionals who love math and data, by the way.

His advice was to carve out a big enough piece of your nest egg–he didn’t say how much that should be in dollars or percentages–and set it aside in so-called safe investments. And then according to him, “You’re cool, right? You’re good. If you look at that safe account and you see stability, you should be just fine with the rest of your nest egg going haywire.” I don’t even know where to start with this. There are so many bad assumptions in here. He refers to these as a safe bucket and a growth bucket. And he actually said, “Then you can just go for it in the growth bucket,” whatever that means, “because, you know, you have a safe bucket.” Okay, Bucket Investing Strategy Brad. Let’s talk these numbers out and see how your advice plays out.

Let’s say you have $200,000 in savings and you’re trying to follow Brad’s advice. Your curveball account is funded. So, all of this $200,000 is earmarked for long-term savings, aka, retirement. According to Brad, to avoid paying the unjustified fees of an advisor to counsel you during rough times, you need to divide this money into a safe bucket and a go-for-it bucket. So, you have to answer the question, what portion of $200,000 makes you feel safe? I’m going to start with half of that in the beginning. So, we have $100,000 in the safe bucket and $100,000 in the go-for-it bucket. I like the idea of using CDs for safe investments. They tend to get higher interest rates than short-term bonds, and they have lower risk than long-term bonds. According to Federal Reserve economic data and other sources, the average six-month CD rate over the past 30 years is between 1.5% and 1.75%. So, I used 1.65% for the purposes of this calculation.

I know CDs are paying about 5% now, but I promise you that will not last forever. Okay. So, let’s take the other $100,000 of your hard-earned savings, put it in an S&P 500 index fund. I guess that might be what Brad means when he says ‘go for it.’ Again, I don’t know. I’m going to use a growth rate of 9%. I consider that conservative because the S&P 500, for example, earned an annualized return of 10.08% over the 34-year period from 1990 through the end of 2023. Just trying to be fair here, giving Brad his due. It’s worth noting that the 9% average includes the horribly negative years of the financial crisis. So, there must have been some fantastically positive years too, right?

So, what kind of returns can you expect from Brad’s bucket investing strategy over 20 years? So, let’s start with your safe bucket. You put $100,000 into CDs, paying 1.65% for 20 years, and at the end, you have $138,723. For the rest of our examples, I’m going to round to the nearest thousand so that this is much easier to listen to, but believe me, the math is solid. You can check out the calculations down to the penny in the show notes for this episode. And now let’s calculate your go-for-it bucket. Twenty years of $100,000 at 9%, and that’s now worth $560,000. So, the total is $699,000. Doesn’t seem bad, right? Nothing to shake a stick at. I mean, it’s $499,000 more than you started with. You could view that as free money. I would.

But what is the opportunity cost of this strategy? See, opportunity cost is a very important consideration because it’s basically assessing what you could have had had you chosen a different strategy. What else could you be doing with your time and money? In other words, what could you have earned if you had a different plan? Let’s say you’d never heard of Brad and his bucket investing strategy. So, you hire a comprehensive behavioral financial advisor. That advisor charges 1% per year to build a better and more diverse portfolio that aligns with your financial goals, and you invest all 200,000 of your hard-earned dollars with her.

You work closely with this advisor. You manage to hang on and stick to the plan through the up markets and the down ones, and you earn that 9% return minus the 1% fee on your entire nest egg for 20 years. So, let’s do the math. Your initial $200,000 has turned into nearly $932,000, which means you earned $233,000 more than if you used Brad’s safe and growth buckets. Even if the average return from your managed portfolio was only 7%, you’d still have $774,000, which is close to $75,000 more than bucket investing Brad’s ill-informed strategy would have returned. That means your opportunity cost or the potential return you lost because of his advice is somewhere between $75,000 and $233,000, and that’s with just $200,000 to start.

If you’d put $400,000 behind his approach, that cost would more than double. Oh, but it gets worse. Because if you think about it, you’re starting with 50% of your savings allocated to the safe bucket. As your stock portfolio grows in size relative to your CD portfolio, you would likely feel obligated to take money out of your stock portfolio and allocate that money to CDs because it seems logical that their proportions should remain the same, doesn’t it? If the goal is 50% of your money in a safe bucket and 50% in a growth bucket, you’re going to allocate more and more of your savings to very low, long-term-performing vehicles. And your bucket results will be even more bad, Brad. Okay, that was punny, even for me.

The point is that there’s a few holes in Brad’s bucket strategy and the opportunity cost is likely even higher than what we’ve talked about here. And of course, this is all assuming that the bucket strategy accomplishes its original intent, which was to insulate you emotionally from the ups and downs of the market. It’s really easy for Brad to talk a big game on the internet that masks even bigger losses. Understanding how the numbers play out over the long term and having the evidence to back it up is part of why it’s so important to have a comprehensive fiduciary financial planner on your team. You will end up with a better financial experience and more money in your bank account. So, that’s number seven on my list of worst financial advice, using the bucket investing strategy. Yes, they get even worse from here because these armchair advisors just don’t know when to quit.

Number six is Forget the 401(k) Chad. So, I’m listening to a podcast and this guy that I’m calling Forget the 401(k) Chad says, “You probably shouldn’t contribute to your employer’s 401(k) because the investment options in there are really bad. Basically, he’s saying, “You can’t really make money in a 401(k), whether that be because they have high costs or bad investments. He says, “No, you should just put your money in an IRA and max that out because the maximum amount you can put in an IRA every year is about a third of what you can put in a 401(k). But then he says you should put the additional funds that would have been in the 401(k) into a brokerage account instead. According to him, you can forget about the tax deduction because you can make up the loss you’ll take by paying taxes in excess earnings.

This guy, Forget the 401(k) Chad, is a little better than the version of this guy I used to read ten years ago who was saying 401(k)s were a Ponzi scheme, but both of them belong to a whole cadre of Chads who really want to use the psychological tool of convincing you that the way everyone else does it is just too milquetoast or mainstream for you. If you’re special, and if you’re in the know like he is, you’ll do it his way. So, wow, Chad. Just like wow. And probably not. I picked my jaw up off the floor and added that piece of awful advice to my list. And here’s why. Let’s do some math.

The first thing he doesn’t understand is that the 401(k) is simply one of the best places to save on taxes. The other place is the mortgage interest deduction if you own your own home. But for those of you who work for employers that offer a 401(k), you can defer taxable income every year into a 401(k). In 2024, you can defer $23,000 and that number increases in most years. It never goes down and occasionally it stays the same. The point is it’s a much bigger number than the IRA max contribution, which is just $7,000. So, contributing to your 401(k) is literally taking money away from Uncle Sam and putting it in your nest egg. It’s a pretty good deal. Don’t overlook it.

Yes, sometimes the 401(k) investment options are pretty bad, but they have to be like really bad to do what Chad is saying. So, let’s do a little math so I can show you what I mean. And remember to check out the show notes on my website if you do want a full breakdown of my checked, checked, and double and triple-checked calculations. I really can’t do a full comprehensive treatment here, of course, but I’m going to operate on the assumption that you have even the slightest prowess at picking 401(k) investments.

The U.S. Department of Labor requires that every 401(k) has an index fund in it. 99% of the time I see it’s an S&P 500 index fund. And to be clear, that is an assumption. It’s not investment advice. I’m not responsible for your 401(k) investment choices if I don’t know you and don’t work for you. And that would be something that you would need to select on your behalf.

But for the sake of this example, let’s be generous and say it’s one of those really, really, really big expensive 401(k) plans. So, you get the returns of the S&P, but the investment company or the 401(k) provider, your employer, charges 1%. You max out your pretax contributions, i.e., meaning you don’t pay taxes on this amount, to your 401(k) at $23,000 for five years. And because the cost of the plan or the investment is 1%, you’re returning 8%, you’re earning an 8% return instead of the market average of 9, which we discussed before. And at the end of five years, you have a little over $134,000 from $115,000 in contributions. Okay. Not bad.

In our second example, you follow Forget the 401(k) Chad’s advice and put the max annual contribution into an IRA, not the 401(k), which is only $7,000 instead of the $23K that could go into your 401(k), so you still have $16,000 left over, right? You were going to put $23k into the 401(k). You didn’t do that. You put $7k into your IRA instead. You have $16k left over. Because you didn’t put that into your 401(k), you pay taxes on that amount at a 25% state and federal combined tax rate and then Chad says to put the remainder, which, after you pay taxes is $12,000, into a brokerage account. Remember, these accounts are anticipated to grow at 9% instead of 8%, which is what this guy says is going to be your saving grace. You’re avoiding the costs of the 401(k) plan.

Running out of air, but I’m not running out of words.

So, how much do you have now? Well, in your IRA, after five years, you have just under $42,000 and your brokerage account is worth $60,000. So, the total balance is $102,000, which puts you at an opportunity cost of $32,000 over just five years. So, Forget the 401(k) Chad’s bad advice just cost you $32,000, and those extra supposed returns aren’t enough to make up the difference from the huge tax hit you took at the beginning. Let’s take those numbers a little bit further in a more real-world scenario because most employers offer some kind of matching in their 401(k), and five years is really too short of a period to evaluate. I mean, it’s really not worth it to do your 401(k) for five years. You want to do it for 20 years, right?

And, in this math, we’re going to have your employer matching you at $3,000 per year. So, now there’s $26,000 each year going into your 401(k), that $23,000 you contributed and the $3,000 your employer contributes on your behalf. At the end of 20 years, your 401(k) is now worth $1.19 million. Okay. So, that’s something to compare to. What if you took Forget the 401(k) Chad’s advice while you were working for that employer? You contributed only to an IRA instead of your 401(k), then you pay the income tax on the remainder to contribute to the brokerage account. For one, you’re missing the employer contribution because if you don’t contribute, they don’t contribute. That’s how a matching contribution works. So, after 20 years, the balance of your two accounts is $972,000. And your cost of Chad, as it were, is $218,000. I want to be really clear about this. Those numbers are based on you investing the same amount of money in two different ways.

Said more specifically, it’s about not using one of the top tax deductions Congress allows you, and that is the employer-sponsored 401(k). It costs you nothing more to use it, but not using it can cost you so much. Just like interest and returns, financial mistakes compounded over a time are a big freaking deal. In this case, nearly a quarter million dollars’ worth. That’s the cost of bad advice. And that really is a cost I don’t want you to pay. So, why do you keep taking financial advice from nonprofessionals who don’t even understand math? The impact is huge because if you take small mistakes and compound them over time, you end up with huge ones. And some people never even realize that they’ve literally cost themselves hundreds of thousands of dollars, if not millions, in mistakes over time from bad, often free advice.

All that to say, get good advice, please, or at least promise me you’ll work with someone who can do math. That is not a high bar for a financial advisor, and a lot of these armchair experts with a microphone and internet connection just aren’t meeting that basic bar.

One more time for the folks in the back. Don’t take investment advice from someone who doesn’t work for you and doesn’t answer to you. Period. Okay. That was a lot of math. It was dense. I promise the rest of the list will be less number-dense, and if you’re a visual person, you can head to the episode show notes at HendershottWealth.com/248 to see how these numbers play out with calculations down to the penny. All right. Now, moving on to number five on my list of worst financial advice on the internet.

Number five: Know It All Brad and his professional opinion. There is a tendency I see for people to look inward rather than outward for financial and especially investment advice. So, people who are smart tend to relate to the people like them, the people around them who they also think are smart. This is especially rampant in the industries of tech and engineering. At least that’s something I’ve observed in years spent working with Silicon Valley tech employees. I love them. They’re my clients. They’re great. These folks are smart when it comes to innovation and technology.

And because many of them are founders or co-founders of companies that can and do change the world, a small number of them get really, really, really rich. Within this community, these humans are heroes. And with that often comes an ego, an overconfidence, a hubris. They want to use their thinking, their frameworks, their friends, and the knowledge that’s easily accessible to them to solve problems. As an example, I occasionally listen to podcasters who have guests on their show to talk about, you know, a particular investment or financial strategy. All fine and good, except the guest’s credentials and experience look like the podcaster’s.

And I’m not saying it isn’t possible for someone without a PhD in finance to have a great investment portfolio. I’m just saying that when I do hear non-technically trained people talking about a financial strategy, it’s never once been with the kind of rigor or scope that someone in my field would expect. Let me give you an example. A while back, a well-known male podcaster who’s earning his income in various forms of advertising and internet marketing, and I’m just telling you that so that you have a sense of what he’s an expert at, decided to do a show about investing. So, who did he bring on the show? Well, another internet marketing guy, of course. So, we’ll call him Know-it-all Brad.

This marketing tech bro who, his name is Brad again, who is not an investment professional, talked about how he’s taking all of his profits from his business and he’s investing in real estate and dividend-producing stocks. Dah, dah, dah. And you know what? Just like I said before, the entire conversation lacked any of the terminology or evidence for it being a successful strategy. These are words you would hear an investment professional use. Brad reported no history of returns, no annualized or internal rates of return. And real estate is an incredibly anecdotal investment because everything comes down to the features and characteristics of the specific real estate you buy.

So, it’s not a good idea at all to extrapolate someone else’s purported and reported success to your own. Not only that but Know It All Brad hadn’t even sold his real estate yet, so he has no full life cycle of the investment to report. Also, his dividend stock theory is flawed. We know this as investment professionals, but of course, there’s nothing I could do about it. I mean, I’m listening to this podcast going, “I can’t believe there’s like 50,000 people listening to this right now.” I mean, there are huge bodies of evidence around dividend-producing stocks. The behavior patterns of these companies and those dividends are already known. This guy’s methodology, theory, and strategy, they’re all just wrong.

While the advice he was giving may not have been as terrible or destructive as some of the other recommendations out there, there’s a lot of evidence that shows us there are far better ways to invest than the “best approach ever” that he was going on about. The point is this really well-known marketing technology podcast guy reached out to another marketing technology guy to talk about investments. It’s an echo chamber, and it’s usually full of Brads and Chads who are interviewing each other. I know you’ve heard this.

Another example of this is an absolutely lovely medical professional I follow on Instagram. I won’t say what kind, but the point is she is a medical professional who recently posted about how sick to her stomach she feels when she hears that her fellow medical professionals are actually paying any income tax from their businesses because she supposedly set up some multi-entity scheme that helps her avoid taxes. First of all, I hope she knows that the IRS has access to Instagram. So, the very fact that she posted about this should have you raising an eyebrow. I mean, I wouldn’t put it on the internet. If you aren’t paying taxes, you either have no profits or you’re breaking the law, so you’re either going broke or you’re going to jail, one or the other.

And this again, up to this point, really my opinion of her was that she was very lovely. I still think she’s lovely. I just think she shouldn’t get involved in this thing. This very lovely medical professional is followed by tens of thousands of similar medical professionals who now think they should take her advice. It’s really sad and it’s really bad because you know what? When the IRS comes calling and penalizes someone who took her advice, I mean, people go to prison for income tax evasion, guys. Don’t forget that. That person is screwed both ways because nobody’s going to take responsibility for that bad advice. And this is why I always say, “Don’t take financial advice from people who don’t work for you and don’t answer to you.”

This kind of thing, the echo chamber I’m talking about is rampant in families, too, like taking investment advice from your father who’s a doctor or a lawyer and clearly very smart. Actually, I was laughing with my friend the other day who’s a nurse practitioner about how doctors–and she works with a ton of doctors, she’s basically a GP herself–how doctors are infamous in my industry for being clients you just don’t want to work with because they think they know everything and you can never get anything done for them. Don’t get me wrong. Clearly, doctors and lawyers are incredibly smart. But again, we’re looking to people who are trained in how to evaluate and recommend investments and financial tools for our investment advice. You wouldn’t come to me for open heart surgery, right? I sure hope not.

Before we leave this piece on our list of the worst financial advice, let’s agree there is value in recognizing that there are experts in every field. It might–and probably would–behoove you to sniff out the Brads and find an actual financial professional. Don’t be afraid to look outside your circle, and maybe be a little humble in recognizing that if someone spends their lifetime doing, studying, and practicing something, they’re probably going to know it a little better than you if you don’t. Agree? Agree.

Okay. Onto the next. Number four: Commission-earning Chad and his get-rich life insurance policies. Oh, this is rampant. So rampant. Okay, I’m calling out the life insurance guys pretty hard on this one. And the truth is this bad advice: specifically, that you can get rich off a life insurance policy, really applies to all forms of insurance products that salespeople tout as investments. A few examples are whole life insurance and annuities. Let’s get one thing clear from the beginning: Insurance is insurance. It’s not an investment. There are insurance policies with investment components but my experience and by my experience, I mean, this is pretty much the way they are, they underperform the investors’ expectations.

And yet there are plenty of Chads out there who put “financial advisor” on their business card or their email signature line and would be happy to show you a whole life insurance policy with lines that slope upwards and benefits that pay out for decades but you can’t have them both. By the way, just so you know, put this little information in your hat. Financial advisor is not a title that’s regulated. Anyone can call themselves that. It is the designation names that are protected, for example, CERTIFIED FINANCIAL PLANNER^®, Chartered Financial Analyst, Certified Public Accountant, and the like. If you see those letters after someone’s name, you do know something about their education and experience. But if you see someone calling themselves a financial advisor, it doesn’t mean much.

Meanwhile, those self-declared financial advisors who are really financial product salespeople are earning commissions and all-inclusive vacations off their sales where they can party with the Brads. The point is life insurance, annuities, and other vehicles like them have a time and a place, but they are far too often overprescribed in situations where the opportunity cost of paying premiums, in some cases as high as your mortgage, is the compounding returns you could be earning had you actually invested that money directly and for your own benefit. In other words, insurance serves a necessary purpose. I have insurance. My clients have insurance. If you die, you want your loved ones to be taken care of and paid out by that insurance. And insurance is not the place to put your retirement nest egg.

In Episode 242 of this podcast, I interviewed Ashley Foster, who spent nearly a decade as a life insurance salesperson before starting his own financial planning firm. He told me, and you can go listen to that episode, a typical life insurance policy should generate a 3% to 4% return. So, this is bond-like or like a high-yield savings account. You’re not going to get rich off that like many agents claim that you will. I also had Kelsey Burke on the podcast to speak to annuities in Love Your Money 241 and she shared that, and I’ll quote her, “Annuities are a financial vehicle that exists for protection, not wealth building. And the opportunity risk is the growth potential you’ll miss out on by locking your money up inside of an annuity instead of investing it.”

I could go on, but by now I hope you get that insurance is not an investment that’s going to help you achieve your wealth goals, and any honest fiduciary that’s not a commission-earning Chad will recommend insurance only when necessary in supporting your long-term goals. And by God or Goddess, if you ever hear of anyone selling discount life insurance, run. Run. Run, girl, run. If everyone is paying 25% of what they should for premiums, the insurance company isn’t pooling what it actually needs to cover the claims that do come in. And trust me, you do not want to spend 20 years paying premiums only to have the insurance company be unable to pay your death benefit to your loved ones.

Buy your next pair of shoes at a discount. Buy the ugly fruit and vegetables at the grocery store at a discount. Buy a book for your next flight at a discount. But for the love of my sanity and your long-term financial health, there are things that are just not worth shopping discount for. And financial services and products are one of them. You want more value, not less. All right. We having fun yet? We have surpassed the halfway mark of our list. Let’s keep going.

Number three: Budget By Envelope Brad. No doubt you’ve heard of the envelope system of budgeting. But if you haven’t, with this system, which is touted by many-a-Brad out there, you’re supposed to break up your spending into categories and literally keep cash in an envelope to allot to each category. When you want to spend your money, say, at the grocery store, you have to pull out your envelope and count out the cash. Aside from the wild risk that you’re putting yourself in of getting robbed as you walk around with envelopes of cash, this method of budgeting is extremely controlling and restrictive.

Like, I like to be free with my money, right, to the extent I can. Not to mention that cash literally loses value as you’re holding on to it. I’ll be totally honest, I don’t budget. Almost none of my clients budget. I hate budgets. I haven’t budgeted in years. I have no idea how much I spend on gas versus hair product. Like, I just have no interest in knowing those details. I really don’t care. What I care about is knowing, A, how much I spend on an annual basis to live a life I love and, B, am I on track to achieve my financial goals? I really don’t see any reason I should get in the weeds with myself or my clients about specific spending choices. It’s the big picture that gets you where you want to go. I mean, the thing I do use is cash flow automation, which does not require envelopes or paper money.

I’m not going to go into it a lot here, but it’s a multi-account system. I talked about it in a podcast episode before. We have a lot of resources, teachable resources. So, I’ll put a link in the show notes to that alternative system. Automation, I love it.

In spite of my disdain for budgeting, I’m consistently on track to achieve my financial goals, and that really is, I promise you, I promise you, that really is what matters. So, if you’re interested in a system that doesn’t involve carrying stationery filled with cash or controlling your spending down to the penny with some crazy spreadsheet. Check out that link in the show notes, which you’ll find at HendershottWealth.com/248. Then ditch the envelopes, forget the rigidity, and find a money management system that supports your financial freedom and works well, pretty much no matter what your goals are.

All right. Number two, Just Buy Gold Chad. That’s the one I hear so many times that people have asked me this question. Unless you’re treating yourself to gold jewelry, which I’m a fan of if it works in your cash flow automation plan and it’s not an impulse purchase on a credit card because you are having a bad day, it’s not worth “investing in gold.” Why? Well, because like our good friends, the insurance products, gold is not an investment. Folks, gold is a rock. It really is just a rock, and you can only make money on it through speculation. Gold is not a company that produces a valuable product. It’s not real estate where people live or do business. It is a rock.

Sure, it’s a pretty rock. Make it into jewelry. But gold does not produce value on its own, and it’s not at all likely to be a contribution to your wealth-building over your lifetime. Here’s some data for you. Get ready. During the massive inflationary time period from 1979 to 1984, we had a 7.6% inflation per year in this country, and gold only rose 4% per year. So, in six years, prices went up 45.6%. Gold went up 24%. Not very great. And what was your opportunity cost of investing in gold? What could you have gotten with your money over that time period? If you’d been invested in the S&P 500 index fund that I keep talking about? Well, over those six years, your money would have returned 94.47% cumulative, which obviously would have outpaced inflation. Pretty amazing right? It’s crazy when stuff like that happens.

So, when someone tells you you should buy gold, if you want to know why, just follow the money. They’re inevitably selling gold in the form of some gold-buying strategy, a gold investment, a gold fund, or maybe they’re a jeweler who’s the only one who can actually make something out of the rock we call gold. And here’s another gold-peddling story. So, for years and years and years, I’ve been listening to so-called pundits and gurus talk about how you should buy gold because there’s a crisis coming. The sky is falling, the banks are crashing, the dollar is dying. So, buy, buy, buy, buy, buy, buy gold. You know what? None of those doomsday scenarios have come to fruition, obviously. But if you had bought gold way back then, you’d probably have tanked your financial plan by now because the price of gold trends sideways over time.

So, whenever I hear people talk about buying gold because of the “coming inflation crisis,” I switch the channel or I delete the episode. I’m just a no. And you can be a no, too. You can just tune out. Also, and they always say this, banks fail buy gold. Banks fail. They do. Banks really do fail. Banks fail all the time. And that doesn’t mean we’re facing impending financial or economic collapse. We have this super cool government entity called the Federal Depository Insurance Corporation that steps in. It finds a buyer for the old bank’s remaining assets and manages the seamless transition of that bank over to the new bank owner.

Yep, banks are failing. In fact, I personally have been a customer at two banks that failed Washington Mutual and First Republic, and I didn’t lose any money when either of them failed. And I’m still standing better than I ever did, thanks to those compound returns from my balanced and diversified stock portfolio. So, you can trust me when I tell you that gold is not a safe haven asset, even if it might help you hedge against market volatility over short and random periods of time. If you look at the historical trends, you’ll notice that the price of gold tends to go up when people are scared. So, of course, it went up during the 2008 financial crisis, when the stock market fell by more than 45% in one year.

You may remember, Lehman Brothers went belly up. The price of gold also went up in 2020 when the global COVID pandemic started, and we were all scared. But when things return to normal, gold just stops going up. And just to repeat here, it’s not producing value for people when it goes up the way a company does. Gold, I’m sorry if you’re tired of hearing this, but it is simply a pretty shiny rock people buy when they’re scared because they’ve been trained to. What really grinds my gears is that when we see these anxiety-driven spikes in the value of gold, it doesn’t take long until you see news articles and opportunistic folks like Just Buy Gold Chad showing you charts that “illustrate” these historic values compared to the Dow Jones or S&P 500.

But you know what? In all probability, and almost every time, they’re showing you a very short snapshot of time, maybe just one year. I-I’ve seen like up to five. And they’ve cherry-picked a gold index that backs up their position. But your investing life is much longer than that. Your investing life is your whole lifetime. You need an investment plan that will carry you for 50, 100 years, not five. When you back up and look at that big picture view, what you actually see is the spikes in the value of gold correspond with major global upsets like the COVID outbreak. And the Dow Jones is absolutely soaring over gold consistently since the days of the dotcom bubble.

Again, head to our website’s show notes if you want to see these visuals for yourself. Like, I’ve got some charts and graphs in there that I can’t give you visually. I hope at this point that you’re coming to terms with the sheer volume of things you can read or listen to that legitimately sound sophisticated and real, but just aren’t. And I’m really sorry if this shakes your faith a bit, but it’s true. And it’s also really important that you learn how to separate what’s true from what’s trendy. Or you can hire a fiduciary who does that for ya. When you’re aware of the ways data can be manipulated to stoke an emotional response, you can be more critical of the content you’re consuming and equipped to separate the fool’s gold and get-rich-quick schemes from the tried, tested, and true evidence-based approaches that work over the long term.

Because even though history shows us that gold does have a track record of spikes in value, it’s really unpredictable when that’s going to happen. And that sounds a lot less like a safe haven investment, and more like the number one piece of worst financial advice I see on the internet.

Here we go. Drum roll. It is Beat the Market Brad. Okay, we made it to number one. The very worst piece of advice I see and hear constantly on the internet in many, many, many, many, many, many different packages in different outfits with different costumes and different shiny things to make it look pretty, it’s one of the many, many versions of siren songs telling you how to achieve high returns in the stock market. That’s active investing.

Anytime you hear someone talking about things like stock picking, market timing, trading options which are calls and puts or technical or fundamental analysis, you can run. They’re not going to call it active investing every time, but that’s what they’re teaching and that’s what they’re advocating for. That’s what they’re selling you. Active investing is a term for all the myriad of activities, some of which I just named, that serve to help people to identify stocks before they go up in price. There are innumerable possible ways to attempt it, and it’s never, not one time, not ever, not never, ever, ever been proven to be possible to do profitably and consistently.

Another simplistic way to understand what active investing is, is to say that it’s kind of the opposite from a strategic view of index fund investing. With index funds, you buy a whole bunch of stocks and you hold on. A linchpin to the index fund’s success is that they’re cheap to buy. They’re really inexpensive, right? So, low cost inside your investments tends to correlate with high returns. With active investing, you’re constantly trying to predict what will go up before it does and buy those stocks or those companies. Without getting into the details of it, the stock market is a vast, vast entity. I believe there’s 20,000 publicly-traded stocks. My clients own 12,000 publicly-traded stocks. I promise you, I don’t know the details of those 12,000 companies.

Stock market is vast and it’s quickly changing, right? Economic trends, market trends, demand trends, and the stock market is very harsh, especially if you’re leveraging your bets. In other words, you’re putting weight on those bets so that if you lose, if you win, you win too. But if you lose, you lose too, right? That’s a leveraged bet. And there are always, every single minute, very, very, very, very smart people trying to outpace you in your trades. If you ask 100 people whether human beings can predict the future, 99 of them will say no. But if you ask 100 people whether someone can predict the stock market, my experience, 99 of them for some strange reason, will say yes.

But honestly, both Wall Street and the financial news media have just conspired to fool you into thinking that that’s true. Seriously. It’s sad, but it’s true. This is a very big topic and we could honestly talk about it for years. There are definitely investment professionals who make money using active investing. My husband was one of them. You haven’t heard from him on the podcast in a while, but he’ll be making an appearance soon. He does have a PhD in finance, and he literally worked full-time executing on a very niche strategy that did make good money.

And for those of you who understand this distinction, he happened to be working in publicly-traded and non-publicly traded stocks, right? Like it’s a niche. And he had special knowledge. And there are other areas where there are niches where people have special knowledge that other people don’t have. It is possible to trade on that knowledge. Most people, 99.9% of human beings, do not have that kind of knowledge. My husband is not the only one, but again, they are full-time professionals and not all full-time investment professionals are successful at active trading, active management, right? So, most of the ones who are successful are doing it full-time. And even of all the people who are doing it full time, not all of them are successful.

In fact, 83% of Wall Street mutual fund managers whose job it is to beat the S&P 500 fail to accomplish that simple task over a ten-year time period. So, most of us just should not try. Warren Buffett said in his 2013 letter to Berkshire Hathaway shareholders, you may have heard of his iconic shareholder letters, that his will recommends that most of the cash that goes to his family be put in a low-cost S&P 500 index fund. So, if someone tells you they have some better solution or strategy or program to sell you that’s going to help you consistently beat market returns, ask them to show you the money, as in ask them to show you their money. Ask them to prove that they’ve made money doing it.

Because there is this thing in investing called a history of returns. If you create a strategy and it can make money, you can prove it. That’s what people like my husband used to do in his meetings with investors when he was running a hedge fund, when really big, wealthy and professional investors, not the kind that take financial advice from a marketing guy on a podcast, evaluate other professional investors like hedge funds and other investment opportunities. They do it in a really robust, formal, and technical way. They actually require people who are vying to manage their money to show them a history of returns. In other words, do not tell me you’ve been successful. Show me.

But smaller, everyday investors don’t know about that. And that knowledge gap is one of the reasons small investors are more likely to take some claims at face value. Or maybe you’re imputing trust based on perceived confidence or something, but something other than a history of returns, like an audited history of returns. And that’s why it’s easier to talk ordinary investors into giving up their money, unfortunately. And that’s what I’m trying to save you from. The profit incentive is strong. Greed is powerful and money is mighty. I hear these Brads and Chads telling me they can beat the market all the time. I hear teachers and shysters trying to relieve people like you of their money all the time. They say things like, “Well, I’m not a passive investor because passive is boring, blegh, I make money on a squiggly line.” The squiggly line is also where you lose money, bro.

What they’re saying to you is that they think they’re the smartest guy in the room, and you can likely debunk their claims with a few minutes in a Google search or forward it to me, and I’ll do it. Let me be clear. I want you to try and debunk everything you hear. Even if you hear it from me, I want you to check up on me, and I want you to check up on them. Look for the research and look for the evidence because I am confident you will find that what I’m saying is consistently reinforced and evidenced by academic research that is held to the most stringent standards. Okay? Google it, because when these Brads and Chads try to tell you they can show you how to beat the market, they’re literally saying they’re smarter than everyone on the planet.

I mean, think about it. The smartest minds in finance have been hard at work at this question for decades. Unlimited profits are available to you in the stock market. Completely unlimited, right? Don’t you think some smart people have tried to figure out how to unlock that potential by now? I promise you they have. So, when someone says to you they have a market-beating strategy in an efficient stock market, remember and remind yourself that they probably actually don’t. Is it possible? Sure. We agree it’s possible. Now show me. Prove it. Show me your history of returns.

And that’s what you say to these people when you read on their website or hear on a podcast that they have a strategy, that this is how you should be investing, or that you should be evaluating the company fundamentals and watching where the resistance points are. It’s all nonsense. There’s a reason they won’t show you a history of returns, and it’s because their strategy ultimately fails. And that’s why this is the absolute worst advice I’ve heard in all my years as a financial planner, and why it made this very special number one spot on my list.

Wow, we did it. You made it this far, money lover. And for that, I want you to give yourself a solid pat on the back. What all this truly terrible, no good, very bad investment advice, money advice boils down to is stop taking advice from people who are not investment or financial professionals. The armchair experts, even those who have done well, don’t know better than your fiduciary advisor who works full-time for you and always answers to you. A true fee-only financial advisor is someone who has taken literally a fiduciary oath to put your interests first at all times, on all of your accounts, and in all interactions. We’re legally and ethically obligated to act in your best interest.

My wealth management clients never pay commissions. They’re never surprised by front-end or back-end costs or hidden fees. The relationships my team of advisors and I build with our clients at Hendershott Wealth are built on one thing that most of the advice on the internet doesn’t deserve. And that’s trust. Trust that we’re acting with your best interests at heart, and trust that your hard-earned assets will be invested in a way that supports your long-term goals. Trust that you’re being treated like the discerning human that you are.

Listen, I really do want you to get rich. I just don’t think you’ll get there with advice from the random Brads and Chads in their armchairs. And I would love for you to call me and give me the chance to prove how good I am at managing and protecting your assets. But whether you work with us at Hendershott Wealth or another financial advisory firm, what I want most for you is to question what you are told, to have trust in who you’re working with, and most of all, to experience confidence and freedom in your financial life. And that’s that, money lover. And I will see you next time.