Are Financial Experts Really Experts & Should You Trust Them?

For example, I do my research and buy a stock I believe has nothing but upwards potential based on all the things I learned about as my time as a finance student. If I like the price to earnings (P/E) ratio, the earnings per share (EPS), the solid earnings outlook and the stockpiles of cash paid out as dividends I’ll invest in the company expecting others to appreciate these aspects and push the stock price up. We’ll even assume that my stock is rated a buy by nearly every analyst (i.e. expert) I could dig up. But then my company ends up having to deal with recalls or a lawsuit that appears to come out of the blue and my stock falls. I did the right thing, I checked my financial ratios and made a smart decision to invest. I even listened to the so called experts. Well, that just sucks. But I couldn’t see into the future and predict my bad luck. Unfortunately, past results will never guarantee future performance. Ask anyone who took a walloping in their 401k after the financial crisis - experts aren’t always right.

So just why am I on this rampage you ask? Stumbling across this article and then this one. Suze Orman, self professed financial guru recommends millennials don’t invest in companies that they like. She recommends exchange traded funds (ETFs) or index funds instead. It’s not bad advice - diversification is a good thing and ETFs provide it but I don’t see the point in telling someone to not invest in something they believe in. I’m not saying throw your money at everything you think is a good idea but start small and invest in companies you actually like after doing some research. Everyone needs to start somewhere. What’s the harm? I’m not saying invest every dollar you own in Starbucks because you love frappachinos (or Chipotle because you love burritos or Yum Brands because Taco Bell chalupas are amazing or Target because you love shopping there or Honda because you love your Civic, you get my point) but I see no harm in including them in your diversified portfolio. I just don’t like the idea of discouraging millennials (hello, millennial here!) in investing how they want to. I think it’s more important that a group scared of investing start investing. Besides, few actively managed funds actually outperform the S&P 500 anyways. I will give Suze credit where credit is due for recommending index funds as a safer alternative.

Now onto my utter amazement at Barbara Corcoran’s advice to just spend money. I like Barbara, I’m a huge fan of Shark Tank but my jaw hit the ground when I read - and I quote - '“I love to spend. Saving? You’re talking to the wrong gal,” she says. “I never saved in my life. I just have a lot of money now by accident, so I think saving is grossly overrated. I know it’s the prudent thing — that’s the gospel of anyone in finance. I just believe it’s not for everyone.”' Um, what? Let’s not tell people saving is overrated. Too many people already have that mindset. And, yeah, I like to spend money too but I don’t see how my shoe habit will somehow land me in a ton of money. More likely it’ll land me in a ton of debt. I guess it takes money to make money so if you spend your money on business opportunities, real estate or other investments her advice isn’t so bad.

Ok, now that I got all that out of my system, what I’m really trying to say is take all expert advice with a grain of salt. What may work for someone else may not work for you. And sometimes someone gets a lucky break. You’re probably not going to end up with a net worth like Suze’s or a real estate empire like Barbara’s but you can still manage your money well and have some fun while doing it.

And for the record, I think the best advice from the two articles above is 1) never buy a new car and 2) avoid credit card debt. Someone once told me a car is the worst investment you can make, the value drops quickly and you’ll never get out of it what you put into it. Remember a new car loses value as soon as you drive off the lot. But it’s probably something you need, so do your research and pick a used car that meets your needs. Now as for credit card debt, I get that sometimes it’s unavoidable. But the interest rates are just ridiculous. Try to pay off your credit card debt immediately. The money you save on interest can be used for something so much better.

See? I’m not saying there’s no such thing as good advice. Surely there is. It’s all about balance. Know what your goals are and don’t listen to everything someone says just because they’re a so called expert. No one knows your money situation like you do. You, my friend, are the expert.