The Problem With Financial Gurus

Today, gurus are everywhere. They’re on television, the Internet, and most forms of media. It’s hard to turn on the radio and not hear some self-acclaimed financial expert tout the joys of everything from debt reduction to using paid advisors who pay him to push their services on his audience. But please remember one thing about gurus:

Gurus are really just salespeople

When the blond with the short hair and obviously whitened teeth goes on Oprah and talks tough about money, she’s there to do one thing: sell her books. When the guy on the radio calls you stupid and dumb for getting into debt, he believes it but really just wants to sell his “university” course on achieving financial peace of mind.

What gurus sell is a dream

It may be a dream to be debt free and scream it to millions of people over your telephone. It may be to start your own successful company because your dad was the “poor one” that was doomed to life as an employee for 45 years. It may be a dream to create a multi-million dollar portfolio by simply refusing a frou-frou coffee drink and investing that $4 or $5 per day instead. But one thing you can be assured of: gurus didn’t get rich by cutting up their credit cards, foregoing the lattes, pinching their pennies, buying distressed properties, or purchasing discounted mortgages. They got rich by selling a dream that reverberated with the average person cruising through a bookstore, listening to AM radio, watching late night TV or watching Oprah at 3:00 in the afternoon. Read Mining The Miners – A Different Way to Make Money

Some guru information IS good

The guy on the radio that fancies himself a financial expert because he did “dumb” things a long time ago does know how to help people reduce their debt: it all boils down to motivation and a “dream” of financial freedom. He’s great at it, using words like “KOO-EWL”, and “YOU PAID OFF TEN BAZILLION DOLLARS IN 2 YEARS? THAT’S FREAKIN’ AWESOME!”

The blond on CNBC who was prominently featured on Oprah (you know the one who always seems to wear a trench coat?) also gives out some decent information, especially on her television show where people present their financial situation and ask if she thinks they can afford a six month ’round the world cruise while deep in debt and earning only $16,000 per year (duh — NO). I guess her Bachelor’s degree in social work helped her figure that one out.

Some guru information is used poorly, impossible to do, or just plain wrong

The guy with the poor father also relies on motivation, but uses a lot of jealousy and invented stories about his childhood to motivate people to start businesses. That guy cracks me up when he claims that if he were starting over today he would be in multi-level marketing. As if he would be selling vitamins or soap or jungle-juice door to door and drawing circles on a white board in some trailer park every night … especially when we all know he would be the one at the top yelling, “Go Diamond!”

Some of the most egregious information I’ve heard from these gurus:

  • Count on a 12% to 15% return in the stock market over the next 25 years
    • Wrong. Six to eight percent is a more realistic number
  • Invest 100% of your portfolio in stock mutual funds
    • No, diversify and spread your risk over multiple asset classes
  • Mutual fund fees aren’t anything you need to worry about
    • Wrong. Fees can erode your returns rapidly
  • Figure on an 8% withdrawal rate in retirement
    • Wrong. The standard is four percent but three is even safer
  • All college education is a waste of time and money
    • Wrong. College graduates consistently make more money than those without that education
  • Use these commission-based advisors (who’ve paid me to endorse and push them)
    • Do I really need to explain how this is a MASSIVE conflict of interest?
  • Only use Roth IRAs (never a traditional IRA or employer-sponsored plans)
    • Wrong. Different accounts are best for different people at different times in their different lives
  • Don’t even concern yourself with tax brackets
    • Wrong. Taxes are the only thing that can erode your returns faster than fees
  • If you work for someone else, you’re a worthless pawn
    • No you’re not, you’re earning a living and providing for your family
  • Ignore all ETFs, fixed annuities, bonds, CDs, and REITs. There is NO time those are ever okay to invest in
    • Wrong, wrong, wrong. These have their place in a diversified portfolio
  • Cut back drastically on every aspect of your lifestyle and you’ll be able to retire rich sooner than you think
  • And, though not a bad idea, just incredibly hard to implement – save 8 months of income in an emergency fund
    • Umm, yeah … how long would this take? The recession would be over by the time most people could save that much in their emergency fund.

Where is the best source to get good financial information and counseling?

Professionals. People who’ve been trained and know what they’re talking about. People who aren’t out just to sell you a course, a book, or a set of CD’s or DVD’s that explain how they got rich.

One source to find these professionals is WiserAdviser, a site that matches you to a financial advisor, tax accountant, or other financial professional that can help you sort out your finances. I highly recommend this site.

An alternate source to get your initial financial information is the Internet and blogs. Don’t discount the hours of research that goes into a blog post but don’t rely exclusively on it either. Use financial blogs as a springboard to further educate yourself on the ins-and-outs of whatever financial topic you need help understanding.

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