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Avoiding Bad Financial Advice

I commonly look to others in the financial advice industry to hopefully ensure I never become narrow minded and miss the opportunity to learn something which may be of value to my clients. I recently read a piece by Suze Orman, probably the most recognised name in the field, which I thought might be good to summarise for my readers. It is about avoiding some of the commonly held beliefs that people will often hand as advice to the point it becomes generally accepted as true. Knowing what to avoid is often more important than knowing what to do, so let’s dig in to what she had to say.

The first on her list of bad advice was that an education is always a good investment. Like everything else, you need to find an affordable university so that the return on investment makes sense financially. Many programs actually have a negative ROI, but most people assume that every degree is a good investment. Crunch the numbers yourself and if they don’t make sense, find a program whose numbers do.

She tackled renting next, as many people over-reach to buy or buy when they are uncertain of a potential need to relocate before the recommended holding period of 10 years. If you are not planning to stay or hold the property that long, renting often turns out to have a lower total cost than buying. Whole of life plans are another no-no and I couldn’t agree with her more. Insurance agents often convince advisors who then go on to pass on the erroneous belief that these policies somehow are a better value by than keeping investing and insuring activities separate. In my experience every whole of life policy I have come across held by a client turned out to be a horror story.

She goes on to talk about a subject I written about extensively, avoiding the bond market because it is touted as safe. In the long cycle where interest rates fall from above average levels this is true, but when they sit at rock bottom the bond market becomes just as risky as the stock market. Her final piece of wisdom in the article is to avoid thinking that only the rich can benefit from a trust. Many small estates get wiped out when a will is contested and having a trust in place can avoid lawyers eating into the money you intended for your loved. The smaller the estate, the more disastrous that kind of situation could be and thus the more valuable a trust actually is.

I often have written about educating yourself financially and so I thought it a good idea to occasionally pass on the people I read from time to time. While many of the specific pieces of advice Suze Orman gives are geared towards US investors, many of her more general articles are very practical and applicable to people living anywhere in the world. I may not agree with everything she writes, but for the most I think she won’t steer you wrong.

The best way to avoid bad advice is to find a small group of columnists such as her and stick to them only. If you read anything and everything coming out of the financial media without considering the source you will likely find yourself making a big mistake at some point. My top picks are Warren Buffet, Jon Mauldin, Suze Orman, and Sy Harding. They probably have written far more stuff between them than you will ever get around to reading, so try to stay focused on these few and you will most likely do alright in the long run.

They don’t always agree with each other though, so make sure you always understand what you are doing and why as much as possible and go with what you feel is right in the end. I do have faith, however, that none of them will give you advice that will lead to any serious mishap in your financial situation. The same cannot be said about much of the rest of the stuff out there that you could read from the rest of the industry, so buyer beware applies when it comes to other so called “experts”.

David Mayes MBA provides wealth management services to expatriates around the globe, focusing on UK pension transfers. He can be reached at david.m@faramond.com. Faramond UK is regulated by the FCA and provides advice on pensions and taxation.

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