Bad Financial Advice

In 1990, David Letterman asked his friend Jerry Seinfeld how his new sitcom was going. Jerry responded saying there was one frustrating problem: NBC supplied the show with teams of comedy writers and Jerry didn’t think they were getting any good material from them.

“Wouldn’t it be weirder if they were good?” David asked.

“What do you mean?”

“Wouldn’t it be strange if they could all just produce reams of hilarious material day after day?”

Thinking back on this conversation a few years ago, Seinfeld laughed and said, “It’s supposed to be hard.”

When I first read this anecdote I thought to myself, “Wow, that makes sense,” and started to think about this concept in other professions.

About 3.5% of high school basketball players get to play college basketball. And about 1% of those college players make it to the NBA. It’s obvious that getting to the NBA is really hard, and you can be talented and still not make it. The reason professional sports are exciting is because the players can do something almost no one else in the world can do. Lebron James is interesting because there’s only one of him.

Every investor knows, or at least should know, that more than 80% of professional investors underperform their benchmark (the percentage is arguably more depending on how you calculate it).

Wouldn’t it be strange if it were different?

Wouldn’t it be weird if every ambitious investor could pick a few stocks and earn returns capable of generating massive amounts of money? Or even most of them? How and why could that world exist? The reason Warren Buffett is interesting is because there’s only one of him.

Only 6% of U.S. households have a net worth of $2 million or more. Building wealth is hard to do and only a small percentage of the population actually succeeds in doing it. But it would be more strange if it were different. It’s supposed to be hard.

For that reason, I’m very skeptical of financial advice that touts a single piece of information that will solve all of your problems.

Just read this one book, it will change your life!
Simply follow these 10 steps and you’ll find success!
Purchase this one investment and you’ll never have to work again!
Just follow the exact same path I followed and you are sure to end up rich!

The problem with this type of advice is it fails to recognize the hard work, personal circumstances, temperament, timing, and luck involved in building wealth. Each of those variables carries different weights at various times of our lives.

It’s never just one easy hack that will get you there.

I’m also skeptical of financial advice that implies there is one thing that everyone should be doing.

Personally, I would never make extra debt payments to pay off a 3% mortgage early. But I’ve talked with plenty of people who have fully paid off their mortgage and not one of them regrets it.

There are people who have built wealth from investing in real estate and others who have lost significant amounts of money and time and hate the idea of being a landlord.

There are people who work 80 hours a week at a start-up who hit the jackpot and become very rich in a short period of time. Then there are those who work in a more stable job and become millionaires by slowly saving and investing their money over time.

Some people have 70% savings rates so they can try and retire by age 40. Then there are others who prefer to spend some of their money while they’re young and don’t mind working until their 60s.

It’s called personal finance for a reason. Good financial advice should take into account your personal circumstances.

In my experience, all bad financial advice has these common themes:

• Make it sound like it’s easy.
• Make you believe you can become wealthy overnight.
• Make you feel bad about yourself.

Everyone is so different there are very few pieces of financial advice that are universal. Different strategies work for different people. We each have to figure out what works best for us.

Thanks for reading!