Beware of one-size-fits-all financial advice
It's great to see all the gurus out there who claim to have all the answers regarding financial management. It can be fun and informative to read their various guides, plans, and frameworks in a quest to become wealthy, financially free, debt-free, or whatever. But really, you've got to be judicious in interpreting what you read, because not all advice is created equal, and not all advice is appropriate for everyone.
From time to time I watch Suze Orman, and I am struck by this. She seems to operate under the assumption that her viewership is significantly wealthier than the average American. She may have enough demographic data to know if her viewers are wealthier than average, but her advice isn't always sound for everyone. Ironically, Suze doesn't exactly practice what she preaches, as far as the investment game goes. And for her callers, she vastly oversimplifies the financial aspects of their difficulties. Husband a money bully? Divorce his ass and move away! Spending too much? Spend less! Uhm. What great insights.
I actually have a bigger quibble with David Bach, which I addressed several months ago after reading a few of his books. Bach operates under the scenario of most favorable return. He illustrates the power of his "pay yourself first" by creating almost impossible situations to inflate his numbers. He operates on the assumption of a consistent 10% return and a current tax bracket of 33%, along with a retirement tax bracket of 0%. These are preposterous assumptions, of course. How many of you are currently in the 33% bracket or higher? Most military personnel are in the 10%, 15%, and 25% brackets right now. I'm fairly certain that marginal tax rates will increase between now and retirement age. And who gets a consistent 10% return on their money? For a person with a lower income, a different strategy is needed.
Mass-market gurus do not take on individual clients, and therefore their advice should be taken with the requisite grain of salt, as it is not tailored to specific needs. If you're looking for specific financial advice, it is best to visit a financial planner or financial counselor. In fact, you may even benefit from visiting more than one. Individual situations are complicated and vary widely, so it's imperative that you find someone qualified to understand your own financial goals and help you create a plan to achieve them.
From time to time I watch Suze Orman, and I am struck by this. She seems to operate under the assumption that her viewership is significantly wealthier than the average American. She may have enough demographic data to know if her viewers are wealthier than average, but her advice isn't always sound for everyone. Ironically, Suze doesn't exactly practice what she preaches, as far as the investment game goes. And for her callers, she vastly oversimplifies the financial aspects of their difficulties. Husband a money bully? Divorce his ass and move away! Spending too much? Spend less! Uhm. What great insights.
I actually have a bigger quibble with David Bach, which I addressed several months ago after reading a few of his books. Bach operates under the scenario of most favorable return. He illustrates the power of his "pay yourself first" by creating almost impossible situations to inflate his numbers. He operates on the assumption of a consistent 10% return and a current tax bracket of 33%, along with a retirement tax bracket of 0%. These are preposterous assumptions, of course. How many of you are currently in the 33% bracket or higher? Most military personnel are in the 10%, 15%, and 25% brackets right now. I'm fairly certain that marginal tax rates will increase between now and retirement age. And who gets a consistent 10% return on their money? For a person with a lower income, a different strategy is needed.
Mass-market gurus do not take on individual clients, and therefore their advice should be taken with the requisite grain of salt, as it is not tailored to specific needs. If you're looking for specific financial advice, it is best to visit a financial planner or financial counselor. In fact, you may even benefit from visiting more than one. Individual situations are complicated and vary widely, so it's imperative that you find someone qualified to understand your own financial goals and help you create a plan to achieve them.
Labels: credentials, planning
8 Comments:
I totally agree with you on David Bach. I just finished reading Automatic Millionaire and while I can see some of his points, I totally disagree with the 'one size fits all' approach. I'm sorry, I may be one of the few, but I work very well with a budget thankyouverymuch. :)
Hi Amber, thanks for the visit! Bach is correct in that people do need to save (and probably even aggressively) for retirement, but he's incorrect in assuming that 401(k)s work the best for everyone. I have two jobs and no 401(k), so what do I do?
I'm also not really happy with his contempt for people who use budgets or who are more hands-on in their finances. While it's true that a lot of people won't remember to contribute regularly, others do. Even if you do set up automatic contributions, you risk failing to meet your goals if you don't occasionally rebalance and reevaluate your portfolio.
I agree with your comments, but not with the article's complaint about Suze Orman.
The idea of any call-in show dispensing financial advice kind of bothers me. I think it's likely very difficult to get enough information in 30 seconds to provide responsible advice.
On the other hand, the article seems to claim that Orman's investments are irresponsible, and that a financial planner should take the same advice that he gives to his clients. I think those are both absurd contentions.
If I had $15M I hope I'd have the wherewithal to invest it conservatively in treasuries as well. Since Suze Orman doesn't need more money, why should she be taking risk with her portfolio?
perfect post :) it's been a challenge trying to figure out where to start!!!!--
especially now that i'm a sahm--we're going on base to meet with the finance officers. it's a start :)
Dimes,
Excellent post. I agree that each person must figure out the best approach for their own financial situation. I know what works for others doesn't necessarily work for me.
Samerwriter exactly. With $15 mil in the bank you could pay yourself a surgeon's salary after taxes just by putting it in the bank and earning 5%!
Regarding David Bach etc. for folks who already know the basics there isn't much new. But for someone who's never had a dime to their name it's hard to not get ahead with what they have to say. Even if they get more sophisticated advice later, it's a good start.
In Bach's defence on this point, the average person in California is paying 34% at the margin - 25% federal and 9% state tax. The nationwide average state tax is probably a couple of percentage points below that but still 32% combined. Itemization can take it down a bit by allowing deduction of state tax from your federal income.
Tanyetta- I definitely recommend the relief society of whatever branch you're affiliated with for budget counseling, and barring that, the family service center. If you're serious about investing, I'd suggest shelling out a little money for a fee-only financial planner.
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