Five Ways to Tell You’re Getting Bad Financial Advice

by Mark Wong on March 10, 2010 · 0 comments

in Personal Finance

1.  It’s coming from CNBC

March 11, 2008 – “Bear Stearns is fine.  Bear Stearns is not in trouble.  Don’t move your money from Bear.  That’s just being silly.  Don’t be silly.” – Jim Cramer

March 16, 2008 – Bear Stearns is sold for $2 a share, representing less than 7% of it’s value two days before.

Jim Cramer’s Bear Stearns debacle has been well documented by both the investment community and Jon Stewart on Comedy Central.  My problem with the story is that it only represents the tip of the iceberg.  This isn’t the only time Cramer’s been dead wrong.  In fact, he’s wrong a lot.  Cramer has the forecast wisdom of a two sided coin.

CNBC has to fill countless hours of investment programming every day, and one of those fillers is Jim Cramer.  The Boglehead’s Guide to Investing referred to this material as “investment porno,” but honestly, I think that would be too complimentary of Cramer’s show.  Investing wisdom doesn’t come from how much investing information you have; it comes from how much investing information you choose to ignore.  Turning off CNBC will get you most of the way there.

2.  They try to sell you “Free” Credit Score services

Ben Stein was recently fired from his New York Times column for the endorsement shown above.  This isn’t the free credit report that is guaranteed by law to consumers at least one time a year.  No, this is the one that pretends to be free and secretly slaps a $20 charge on your credit card every month for worthless monitoring services.  And Ben Stein decided to become their spokesperson.  I really can’t stand people who have a strong financial aptitude, (and Ben Stein definitely does) but use it to rip people off.  In fact, based on Ben Stein’s credibility, I recommend that you don’t buy Comcast Cable, Clear Eyes, or even watch the move Ferris Bueler’s Day Off.

3.  They try to sell you Gold

Everyone knows that Glenn Beck is an idiot.  But is he a financial fraud as well?  (Answer: Yes)

On both his political commentary show and his syndicated radio show, Beck blatantly exaggerates the importance of gold and the need to buy this commodity immediately.  He does all of this without informing his audience that he has a vested interest in pushing the price of gold up: Beck is an official spokesperson of a company called Goldine.  He’s even had the CEO of Goldline as a guest on his show to speak “impartially” about his forecast for the price of gold.  (For those of you who are not aware, look up Goldline at RipOffReport.com and you’ll get a sense of their business practices.  It’s essentially a Cash For Gold scam with major celebrity endorsements.)

To some degree I don’t care about the victims of his fraud; anyone that’s dumb enough to sit through his show deserves to get ripped off.  But at the end of the day, this has nothing to do with Republicans against Democrats or liberals against conservatives.  Regardless of your political affiliation, you should condemn Beck for his actions.

4.  They talk down to you

C’mon, it’s so easy even a baby could do it.  Take control of your future.  Start doing your own analysis.  You can beat the traders on Wall Street who work 20 hours a day and have been doing this for decades.   Just waste your money buying and selling stocks while our brokerage firm takes a cut of your investment after every transaction.

While E*Trade’s online discount brokerage structure was definitely a major step in improving market efficiency, they still use a very common tactic among investment professionals to rip off consumers.

  1. First they condescend you by telling you how everyone’s investing and how you’re missing out on great returns.
  2. Then they give you a myriad of investment reports that are way too complex for a layman to understand.
  3. Then they pretend to empower you by showing you how easy it is to make a trade, thus encouraging you to start doing so.  (Power without knowledge is a recipe for disaster)
  4. Finally at the end of the cycle, they take their cut of your investment.

The fact is, trading stocks every day won’t make you rich.  It will only make your broker rich.

5.  They use celebrities to push their products

Hey, it’s that guy from Law & Order.  Clearly that must mean that I will receive superior investing advice and services from TD Ameritrade.  Either that or the transaction fees and expenses of this broker are inflated by Sam Waterston’s endorsement fee.

Celebrity endorsements will always equate to higher expense ratios.  Plain and simple.  If you invest in a fund through their brokerage, you’re the one who ends up paying for the fancy commercial.  Want a better (more frugal) broker?  Use Vanguard.

So having trouble remembering them all? Just review this list:

1. Jim Cramer
2. Ben Stein
3. Glenn Beck
4. E*Trade Baby
5. Sam Waterston

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