Why You Take Dumb Financial Advice

Earlier in September, stock-trading newsletter Wealthpire agreed to pay $1.5 million to settle claims of fraud against its subscribers. The company promised triple digit gains without risk, repeatedly mentioning the chance to earn 1,483% returns. If you think that sounds like a good deal, you may also be interested in buying some cheap, ocean front property in Arizona.

We naturally want to believe in extraordinary possibility. Even as kids, we’re raised on the story of Peter Pan, who has the ability to fly… but only if he believes. This natural inclination is the reason why Bernie Madoff could perpetuate a $64.8 billion Ponzi scheme and how Enron executives could convince the world of their unlikely profits—we want to believe the fiction.

In his Wall Street Journal article “Why Getting Rich Quick Doesn’t Sound Crazy” Jason Zweig discusses the Wealthpire case and notes, “It’s yet another reminder that good mental hygiene—deliberately choosing what to pay attention to and what to ignore—is one of the most valuable assets an investor can possess.” If it sounds too good to be true, especially in the financial world, then it definitely is.

So instead of imagining what life would be like after 1,000% returns on your money, ask yourself why anyone who possesses that knowledge would waste time making a newsletter. Basic logic will help you maintain a healthy level of skepticism about any financial endeavor. Push greed aside and use your head to make wise decisions.

Zweig later remarks, “A consistent message can elbow your skepticism aside; clever marketing can administer a kind of investing lobotomy, numbering you to the most obvious warning signs.” Financial salesmen know exactly what to say:  any time you hear the word “guaranteed” in the investment world—run. There are no true guarantees in life, and the ones you can pay for generally aren’t worth it.

For example, some products are contractually required to provide a given level of return (I’m looking at you variable annuities), but they are almost never worth the associated fees and commissions. Regardless, whoever is selling them will repeat the word “guaranteed” over and over… I guarantee it.

“I want to make you rich,” is a euphemism for “I want to make me rich.” Step out of the narrative you’re given, take off the greed blinders, and ask yourself if whatever financial proposition you’re being sold makes sense. That will keep you away from 90% of dumb financial advice.


Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.