Whether you’re first starting out as an adult or already well established, you’ve probably faced your share of unwanted and unsolicited financial advice. Just know that, the older you get, the more annoying it becomes. And while some frequently doled out phrases like “invest while you’re young” or “avoid debt like the plague” are inherently wise and easy to absorb, not all financial advice is quite as innocuous.
As a financial advisor, I’ve heard my share of bad financial advice, most of it coming from clients who ask, “Is this true?”
Not only is some of the advice I’ve heard false, but it can be downright dangerous as well.
8 Types of Financial Advice You Should Ignore
If your goal is getting ahead financially, you need to block out as much bad advice as you can. I spoke to a handful of financial advisors to get their take on the types of advice you should take with a grain of salt. Here’s what they said:
#1: Any time someone wants you to invest in a “speculative venture”
Orange County Financial Advisor Anthony Montenegro says you should be especially leery of anyone trying to secure your investment in a new start-up or a speculative venture. Why? Because, many times, it’s impossible to know exactly what you’re getting into.
“I know a guy who was cajoled by a friend into buying interest in the development of a supposedly high-end hair salon,” says Montenegro. “He was promised that he’d double his money year-over-year on this investment, but it turned out to be a Ponzi scheme. It was several years of hassle and more money for attorney fees and court costs before he ultimately got back most of his money.”
#2: Any type of “hot” stock tip
Hot stock tips are usually nothing more than financial noise. Friends offering these tips may have your best interests at heart, but that doesn’t mean they can predict whether a stock will go up or down. They probably didn’t even come up with the hot tip on their own; they probably heard it on the news or the radio, or from a friend with little to no investing experience.
“Take hot stock tips with a grain of salt and always perform your own due diligence before investing,” says Kansas City Financial Planner Clint Haynes.
And remember, no one knows what’s going to happen next in the financial markets. While it’s possible to make quick money in the stock market, nobody has a crystal ball.
“Those who claim to are either lying or foolish,” says Sacramento financial planner Grant Bledsoe. “Your strategy should be focused on the long-term and personalized to you, not based on short-term conjecture.”
#3: Investing advice that requires borrowing money
Wouldn’t it be great if you could borrow money, invest it successfully, pay off your loan, and pocket the difference? In a perfect world, yes. But in the real world, you have too much to lose if you borrow money to invest.
“Never invest into the stock market on borrowed money,” says financial planner Matthew Jackson of Solid Wealth Advisors. “If you don’t have the cash, be patient and wait until you have the cash. It’s a much better plan than having to dig yourself out of a hole if things don’t turn out as you hoped.”
Make sure you’re investing and building multiple income streams with your own money, and you’ll be a lot better off.
#4: Investing advice from unsuccessful people
Why is it that the people in the worst financial shape are the first to dole out worthless advice?
“If you have a well-meaning friend with a debt problem giving you financial advice about your investments or budgeting, you’re probably not getting the best quality of advice,” says Seattle Financial Advisor Josh Brein.
“Remember, just because someone gives you financial advice it doesn’t mean you’re obligated to take it, especially if it makes you feel uncomfortable in any way.”
The bottom line: When it comes to financial advice, make sure you consider the source.
#5: Anyone that suggests you go into debt
Just because you are debt-averse doesn’t mean your family and friends are. A lot of times, a debt-laden purchase that seems ridiculous to you can seem like the world’s best deal to someone else.
This is especially true considering our current climate of cheap and easy credit. For a lot of people, a low interest rate isn’t an opportunity to save; it’s a license to spend more.
Be cautious when you hear someone espouse the virtues of borrowing money at any interest rate, says Iowa financial advisor Anthony Reynolds of CoreTegic Capital.
“Although 0% financing is attractive, it’s important to understand the agreement you’re entering into,” he says. “Many agreements come with large penalties for not paying off the amount within the advertised grace period including capitalizing the interest for the entire period. This means there is the potential for the interest to go all the way back to the purchase date and get added to the end of the term ultimately costing you much more for the original purchase.”
Not only that, but easy credit makes it far too easy to spend more than you planned. The bottom line: Don’t borrow money without a plan, or simply because a friend says it’s a “good deal.”
#6: Advice from a “financial advisor” who is not a fiduciary
Because of the complex rules that determine who can call themselves a “financial advisor,” many professionals who are hardly qualified to give financial advice can use this label. Obviously, this spells disaster for the unsuspecting consumers who hire “financial advisors” who are nothing more than whole life insurance or investment salesman pretending to help.
“Only take financial advice from a qualified fiduciary,” says financial planner and host of the Retirement Podcast Retirement Starts Today Radio, Benjamin Brandt. If your financial advisor is recommending an investment product before conducting due diligence about your financial background, that advisor is acting as a salesperson — not a fiduciary.
If you’re unsure, try this simple test, notes Brandt:
“If your advisor shows you a glossy sales brochure during your first appointment, before looking at your budget, net worth statement, or written financial goals, you are not working with a fiduciary and should ignore their financial advice.”
#7: Advice that is obviously biased
While it’s never a bad idea to listen to the personal experiences of others, some people are so clouded by their experiences that they cannot offer unbiased advice.
“Your brother had one good experience buying and selling a house for a profit? Good for him,” says Idaho financial planner and author of How to Buy a Dental Practice, Brian Hanks. Unfortunately, that doesn’t mean all people who flip properties will do so well.
Your neighbor earned a 28% return on a stock last year? That’s great, but it will be incredibly difficult to replicate that success.
“Someone else’s one-time good experience will have nothing to do with how things will turn out for you if you try the same thing,” says Hanks. “Second, people are biased towards putting the most positive spin possible on their experiences. Chances are, you’re not getting the whole story! “
Hanks suggests give your friends, family and colleagues who share financial success stories a high five, then promptly ignoring their advice altogether.
#8: Advice that sounds too good to be true
This last tip sounds simple, but it’s incredibly important. When it comes to investing, anything that sounds too good to be true probably is.
“Every successful investor will tell you that making money is slow and boring,” says San Diego Financial Advisor Taylor Schulte. “There are no shortcuts to creating wealth. It takes time and patience.”
So, when you hear someone giving financial advice that sounds like a fantasy, keep in mind that it probably is.
“If you even have the slightest suspicion that a product or service sounds a little too good to be true, trust your gut, and walk away,” says Schulte. “Focus on the things you can control, like saving more money. It has a far greater impact on long-term wealth than reaching for extra yield on an investment you don’t understand.”
This post was originally featured on US News.