Welcome to episode #103! In this podcast episode, I’m sharing commonly given bad financial advice, including…
- Investing all your money in a single stock based on rumors or tips is discouraged due to its high risk.
- Borrowing money to invest, known as leveraging, can lead to financial trouble.
- Dipping into emergency funds for high-yield investments. The big takeaway in today’s episode? Approach financial decisions cautiously, seek professional advice, and prioritize diversification, liquidity, and prudent financial planning.
Dive into our latest episode for essential financial wisdom and insights!
Hey there, welcome back. This is episode 103. I’ve got a question for you. What was the worst financial advice ever given to you? And did you follow it today? I’m going to share with you a couple of things that I found in my books, meaning that I carry a notebook around with me everywhere I go running a business, Follow ups, you name it, to do’s, and I always need to do some dumping out of the brain. I need to put it to paper so that I can make room for more things. So I do- I’ve got this notebook and I’ve had them for the last seven years. I keep them all. I’m also a fan of color coding, a little off topic here different colored markers or pens so that, as a new thought comes or a new to-do goes in the book.
And with this book I’ve asked people over the last few years, just randomly, I knew maybe in the back of my brain, maybe a podcast or a blog or something, but just out of interest, I asked, what was the worst financial advice ever given to you?
I go through and I read past other things just to try and pull out some gold and transfer it over to my new notebook. So I don’t forget anything. And I actually pulled out the last couple of years and it’s interesting. I guess it’s like reading a diary or journal. And I actually pulled out a few things because I purposely asked people this question and it is of no shock to me. There was nothing in there that was like mind blowing, but it just solidified everything I’ve ever thought and known. So today I’m going to share with you some of the things I pulled out.
So over the course of five years, 10 years, 15 years, I bet you this worst piece of advice has not changed. And the first one is investing everything in a single stock. Pulling out your money or your cash savings to find one winner. Imagine you got this lump sum and trying to find the latest greatest hit and putting it into something, especially if we hear about the latest stock tip.
That’s by far not the best thing to do. Not the best advice. It’s the water cooler advice that you hear at work, “Oh, have you heard about this stock? It’s doing so great.” And then you put your savings, everything you’ve got into that one thing that is extremely risky. The odds of that working out are pretty slim and when it does work out, there’s a lot of behind the scenes that you don’t know.
So That is not the best advice and that is one that I saw a couple times in people talking about the worst advice they’ve received -the latest and greatest hit. Now don’t forget with that, it’s because you have to diversify. I mean you could use this advice, if you can afford to lose and you want to walk into the casino. That’s fine.But you can’t put it all on one pick. Okay.
So then the other one that I had written down and this one happened interestingly, I used a red pen for this one when I jotted this down and went through my book. It was borrowing to invest. Some people, they’re like, “Hey, just take out a loan. This is a sure thing. It’s going to do great.”
No. That was a very popular thing. Leveraging is what we call it. Borrowing to invest. I remember back in, geez, it would have been early 2000. I can’t remember the exact date and I was working as an advisor services rep for a Mutual Fund Dealership. So I was on the phone dealing with the advisors, interestingly enough, now that I am running my own firm.
So I got to gleam a lot of gold and a lot of, you know what…! Not so gold in working there. And this advisor, just knowing what I know now was so unethical being the advisor services and chatting with this advisor from across Canada had said, “you know what, there’s this real estate fund and it’s doing sooo hot. You should see the returns on this. Just go take out a loan and invest in it. You’ll return your money no matter what.”
And I’m thinking, this is unsolicited advice. Long story short, there was a crash after that. Borrowing to invest. Worst idea. Suggest to take out a loan and then invest in a venture or a one hit stock market.
Okay. That is a problem. What if there are cash calls, if markets start to drop there is substantial debt. Leverage usually works if you’ve already got the money in the bank, meaning you’re borrowing, but you can cover it and it’s not going to put you at any risk. So borrowing to invest – worst advice that someone has had.
Actually I’m remembering another conversation right now. And that person did have a leveraged loan back in the day. And so they were actually speaking from their own personal experience. They received that advice. They actually did it (leverage loan). And then the market never came back up and they ended up cashing out because there was a cash call.
Okay next one (worst advice) is ignoring emergency funds and using that money to invest because they want a high return, a high rate of return. And so it’s taking your, what is earmarked and classified as your emergency funds. Which should be liquid and actually saying, you know what? I want to hit on this. I need to make some money. I want some quick cash and turning it around and putting it in something to try and build it. That means you’re skipping the whole purpose of that emergency fund. And I also remember this exact example too. This was quite a few years ago. Sitting with someone, they actually weren’t a client.
We were sitting across from each other and it was a consultation for a financial plan and they were, they already had an advisor and they were sharing their experience and because they had cash in the bank, and I can’t remember what amount it was, 15, 20 thousand dollars, the person that was giving them advice had told them why are you sitting with that in the bank?
Why don’t we put this money into this investment fund, this stock and get you some high return on that. And they shared with me that it actually didn’t turn out so great because that was their emergency cash stash. And guess what happened? Loss of a job. It was an early retirement that was not planned for it. Hence, sitting across from me and trying to figure their stuff out. That performance did not give them the return that they needed. It was also, I’ll throw it out there, not liquid. They were put into what’s called a deferred sales charge. This is back in the day when it was still allowed.
However, couple of years ago it was locked in for seven years where they would pay a high fee and penalty to access it. The purpose of emergency funds is for an emergency. You have to have liquid accessible cash. It is not to build your retirement fund and have these great rate of returns. Ignore the returns and make sure you’ve got your stash of cash.
Another one (worst advice) that I had written down here: It was day trading. That was during the pandemic where it became very popular to do some day trading. And of course it was not advice from a professional and they did it inside a tax free savings account. And guess who came knocking on their door? CRA. There are some rules behind day trading in your tax free savings account. And so without making your eyes glaze over right now and getting into the nitty gritty details and rules, this person listened to advice from a buddy doing the same thing and had cashed out and he was playing the stock market.
So the worst advice ever given. I bet you, we all have a list of that. And it could be subtle as it doesn’t need to be just about investing here. It can be those short little things that we listened to from other people.
So where do you get your financial advice from?
You can listen to that, but then, do some research, do some homework. Call your financial planner. Sit down and talk it through with an expert before you actually take on the worst advice.
Send me a note. I want to know because let’s hear this. What was the worst financial advice ever given to you? And then did you follow it?
Send me an email at [email protected] and also don’t forget to subscribe to this podcast or tell a friend to subscribe. We’re trying to get on the top list finding us on the podcast platforms.
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