The Problem with Financial Plans Based on Sad Stories

“Don’t get a haircut!”

That was my father’s reaction years ago when I told him I was about to have a professional photograph taken. 

I was baffled. I had no more hair then than I do now. Why this odd advice?

Dad proceeded to tell me about his own experience. He’d once had his picture snapped right after a bad day at the barbershop. He never forgot the deep embarrassment he felt over that photo. 

A lot of us operate our financial lives that way. In reaction to negative experiences, we tell ourselves, “Never again!” 

And many also base their financial decisions on the bad experiences of others. Every time a client says, “I’ve heard I should never…” I ask for the source of that financial absolute. Often it’s not the time-tested advice of an expert. It’s the bitter experience of a close friend or family member. 

That’s not entirely unexpected. We tend to trust those we know more than those we don’t. But in some areas of life (e.g., surgery, skyscraper design, financial advice, etc.) expertise is far more important than acquaintance.

You don’t have to live according to everyone else’s mistake. You can make your own wise, informed plan, and then act on that plan! 

Here are four financial “areas” often dominated by loud, emotionally charged stories, rather than the sound advice of experts: 

1. Investing. The popular Pixar film Finding Nemo, features Dory, an adorable blue fish with almost no short-term memory. Perhaps the only creature in the world with a worse memory is the average investor. 

Many forget that markets have always changed directions frequently and unexpectedly. This both confuses and frustrates most investors. They try to “time the market,” and they get burned. 

For success in the market you need to bring—and maintain—a long-term (i.e., 10+ years) perspective. Those with a short-term view often suffer big losses—then scare those close to them with their tales of woe.

2. Real Estate. Real estate is wonderful…until it isn’t. Who could have expected a government mandate (due to COVID-19) that would forbid all evictions, even when rent wasn’t paid for months? Most landlords survived this crisis this time, but not all. Many will pass on their bitter experience to others in the form of, “NEVER get into real estate…the government can cut you off at any time!” 

3. Debt. For most of my career, people have had easy access to debt. This has resulted in much wealth and worry…rarely for the same folks. Easy debt has allowed many to buy more house, more car, and more education than they can truly afford. The painful stories of those who have taken on a mountain of debt serve as proof to the “Never Debt-er” crowd that “debt is always evil.”

4. Life insurance. Life insurance suffers from two things: confusing terminology and a history of overly aggressive salespeople. You’ve got term insurance, which is temporary, and whole life insurance, which is permanent. They are entirely different products useful for different purposes. One is not superior or to be preferred. 

When interest rates spiked in the 1970s, some insurance agents began peddling their permanent, cash value policies as a safer alternative to investments. The idea was supposed to be that the cash values of these policies would grow as fast as a mutual fund. As interest rates fell back to earth, that didn’t happen. 

In response, some advisors recommended, “Buy term and invest the rest!” The problem came when many consumers did buy term, but (surprise!) forgot to invest the rest. 

Look, you’ve got plenty of people in your life who would be more than willing to tell you how they got burned making certain investments, engaging in real estate transactions, borrowing money, or buying life insurance. 

But those things aren’t inherently evil. They’re simply tools that require skill, knowledge, and experience. And the bad experiences others moan about are simply cautionary tales, not a definitive blueprint for what you should or shouldn’t do. 

You don’t have to live according to everyone else’s mistake. You can make your own wise, informed plan, and then act on that plan! 

A great place to start is by reading my new e-book “How to Put Money Worries in Your Rear View Mirror – The Financial Freedom Roadmap.” It’s free—and a quick read. Email me at bmoore@argentadvisors.com and I’ll get it to you right away. 

Argent Advisors, Inc. is an SEC-registered investment adviser. A copy of our current written disclosure statement discussing our advisory services and fees is available upon request. Please See Important Disclosure Information here.

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