Investing advice is everywhere. TikTok. YouTube. Your cousin Eddie.
But just because everyone repeats the same old-time investment advice, it doesn’t make it true. In fact, there are quite a few popular investing axioms that could cost you a lot of money if you listen to them.
Here are seven pieces of useless investing advice that you should just ignore if you want to reduce your money stress.
Cash is king
While having a solid emergency fund set aside (experts recommend 3 to 6 months’ worth), cash is not king when it comes to investment returns.
In fact, in a high-interest-rate environment, cash is continuing to lose purchasing power year after year.
Instead of hoarding cash under your mattress or in a coffee can buried in the backyard, just keep enough cash to sustain yourself in the case of a job loss or other financial emergency.
Then maximize your investments. Investing helps your money compound, and it is the best way to sustain your purchasing power for decades to come.
Investing in index funds lets you own hundreds of investments within a single fund, and offer much better returns than cash over the long term.
While savings accounts are paying decent rates these days, investing in the stock market has always provided better returns over time.
Buy the dip
How many times have you heard “buy the dip” over the past few years? It’s a popular sentiment with finance YouTubers and TikTok creators, but it is not a sound investment strategy.
Buying the dip involves investing more into an asset as the price drops in hopes of owning more of the investment at a cheaper average price.
The problem with this strategy is it doesn’t take into account your investment goals, risk tolerance, timelines, or other factors.
Buying the dip typically refers to a single stock or crypto investment and requires concentrating a large portion of your investment portfolio in a single company. This can be a risky way to invest.
In the case of many popular tech companies in 2022, this led to massive losses. Many tech stocks are down over 75% from their all-time high prices and continue to drop as interest rates rise.
Instead of buying the dip, consider dollar-cost-averaging into diversified investments, such as index funds. This allows you to buy on a regular basis regardless of price, and build a portfolio over time.
Debt is bad
Let’s be clear: Consumer debt is bad. You end up paying interest on items that go down in value. This is a double-whammy to your wallet and can leave you trapped in debt payments.
But not all debt is bad. Even if your favorite financial guru says so.
There are definitely positive uses of debt, including home mortgages, business loans, and even student loans (with caveats).
Home mortgages allow you to purchase an appreciating asset for a fraction of the price. Business loans can unlock more growth and earnings in your business, and raise the overall value of the company.
Even student loans can be a positive investment. While there’s definitely a student debt crisis in America, borrowing an appropriate amount can help you earn a degree in a high-paying field, boosting your lifetime earnings. Just don’t borrow more than you can reasonably pay back.
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Talk to a financial advisor
Financial advisors are licensed professionals that can help you develop a long-term plan for your money. From retirement and estate planning to taxes and savings plans, financial advisors can help you make sense of your money.
But for a lot of people, a financial advisor is not worth the extremely high fees they charge for their services.
Financial advisors charge 1% of your total investments (on average) per year. So, as your investments grow, so does their fee, even if they don’t change your plan at all. Advisors may also sell you funds that charge exorbitant fees and earn a commission.
A better option may be to use a robo-advisor, which is an automated investment service that performs many of the same functions as a financial planner, but for a much lower fee.
In fact, some of the best robo-advisors are free, while others charge a low 0.25% annual fee, which can be four times less than traditional financial advisors.
Buy low, sell high
It’s a simple strategy. Just buy the stock (or fund) while the price is low, and sell after it goes up. But if it’s so easy, why aren’t most investors fabulously wealthy?
It’s because timing the market is a loser's game, and even the most actively-managed funds can’t beat the market average return.
Instead of trying to time the market, just invest regularly into a broadly-diversified fund (or funds) that own hundreds of stocks and other assets.
This lets you spread your investments across the entire market so you can take advantage of compounding interest instead of trying to jump in and out of the market.
Your home is an investment
Buying a home is probably the largest purchase most of us will make. And while homes typically rise in value over time, your residence may not be considered a good investment.
In fact, buying a home may actually cost you more than renting a home and investing the savings, since homes come with a lot of hidden costs that many homeowners don’t factor in:
- Property taxes
- Lawn care
- Pest control
- Major repairs (roof, HVAC, etc.)
Add to that the fact that the value in your home is much less liquid than stocks, cash, or other investments, and doesn’t give you monthly income, you can probably see why your home shouldn’t be considered an investment.
While owning a home may improve your net worth, it’s important to take a realistic view of the actual cost of home ownership.
Buy (insert meme stock here)
You’ve seen it in the news. It’s all over Reddit. And your friend’s buddy’s sister knows a guy who got filthy rich from investing in it.
But no matter how many times your friends tell you to “have fun staying poor,” don’t give in to the temptation to #YOLO your life savings into the latest meme stock.
In fact, for every “I made $1 million investing in Gamestop” story that gets published, thousands of other people lose thousands of dollars and end up back at McDonald’s taking orders in the drive-thru.
Instead of meme stocks, consider buying the entire market (which includes the meme stocks), by investing in a total stock market index fund. This gives you the thrill of being a partial owner in the latest stock craze, without putting all your tendies in one basket.
When listening to investment advice, always consider the source. Does the person doling out the advice have a track record of making the best money moves? Or do they have a conflict of interest?
Investing can be complicated, and tuning out the noise is sometimes difficult. But maybe we can take a lesson from the best investor in the world.
Warren Buffet likes to keep it simple and prefers index funds. Here’s what he said to Berkshire Hathaway shareholders in his 2017 annual letter:
“When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds.”
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