Our world is full of contradictory advice. Ask Google about it.
- You get what you pay for. The best things in life are free.
- Carpe Diem (Sieze the day). Good things come to those who wait.
- Pay that mortgage early. Don’t pay that mortgage early.
- Take advantage of that 401(k). Beware of that 401(k).
- Stock markets are your path to wealth. Don’t lose money in those markets.
Roger Ebert once said, “Doing research on the web is like using a library assembled piecemeal by pack rats and vandalized nightly.”
Two extreme positions. One, no use of the internet. Two, believing entirely and relying exclusively on the internet. Certainly, neither extreme position is wise. How do we find balance in this dichotomy?
Inarguably, there is quality information on the internet. Useful advice exists. We can find answers to our questions. Let’s take just one example in financial planning. The debate of Roth (post-tax) vs Traditional (pre-tax). Should I invest in a Roth IRA or a Traditional IRA? Should I select the Roth option inside my 401(k) plan or go with the standard pre-tax option? If you type this into a search engine, you will get answers across the entire spectrum. There are many challenges for you (the advice seeker). The biggest one is not the content of the article, but researching who wrote it. There’s likely a few types:
The qualified expert. By qualified, we mean some combination of experience, education, and certification standards met.
The random informed. While not quite the expert level, maybe they are well-read or personally experienced on the topic.
The random bozo. Are these people on the internet? Are they spewing opinions? Hmmm….
Ultimately, which one is it? Which one would you listen to? Whose article or comments did you happen to “land” on?
How do we decipher fact from fiction? Those concepts bleed together on the web. We have more media channels than ever. We have more channels in whatever your interest (news, sports, finance). It’s a race for the headline. Make the headline more dramatic. Get the headline out faster than the competition. Guess what this leads to? Lesser quality information for you. How do we get good information and advice where bad has become the standard?
Winning strategies are rooted in long-term perspective. This is true in all important areas, especially personal finance. Too often the short-term is the priority. Have you seen the recent silly commercials about “come to us for our low cost trading?” One company has $19.99 trades. Nope, this one now has $16.99 trades. Wait a second, $12.99 trades. And on and on. Their attempt to “win your business” with the absolute smallest factor of fees is laughable. That’s beside the point. The major point is that all independent research states, the more trades made over time, the less money you will have. Therefore, if you have an investment strategy where the difference of a couple bucks on trades makes a material difference, you have already lost the game. But, that doesn’t matter to them, because in the short term, “trade cheaper with us.” Those are the ads and messages you will see on the internet.
Undoubtedly, the internet does save us time. It is fast. Punch it in, get an answer. This serves us. The speed is not only beneficial, it is necessary. It’s estimated that 40% of people will abandon a website if it takes more than three seconds to load. Patience is in short supply. While we save time with each search, do we truly save time? Studies have Americans screen times at an average of over 10 hours per day. This breaks down into many categories such as TV, smart phones, internet search and browsing. A balance is needed in terms of time-savings and time-wasting.
An ongoing challenge with data on the internet is oversight. How do we regulate it? For us? For our kids? For our sanity? It’s clear that information downloads at a much faster pace than it can be vetted. Imagine, for a moment, you were in charge of supervising the content of the internet. (Yikes!) Have you ever been to one of those trivia nights, typically for charity. Sometimes they have a category where they flash about 30 pictures on a screen, one right after another, and fast. Your table’s job is to then, in about five minutes, write down all the pictures you can recall from memory. This is probably what it would feel like to supervise new content being downloaded to the internet. This makes the ability of determining, what is credible information and what isn’t, a valuable skill. We must develop our filtering skills.
Be wary too of the fear tactics and click bait strategies on the web. When you come across these tactics in the financial or investment realm, it always has a self-serving interest in the background. You have the people predicting doom and gloom and the latest catastrophe du jour. This Jim Rickards fellow comes to mind. This guy would predict “market catastrophe” literally on a monthly basis, year in and year out. You should check your “spam” email folder for him. Go figure, he happens to sell a solution for your fear of his comments. Don’t fret, he’s one in a sea of many. All ready and eager to proclaim, “this time is different.” No it isn’t and no thank you to what you’re selling.
ACCESS FOR THE MASSES
The access and affordability to the internet is encouraging. What was once a luxury is fast becoming a commodity. Technology has the potential to lift second and third world countries higher and faster than previously thought possible. The global nature of the internet (and how companies spread products and services) is likely the story of the 21st century. About half of the world’s population (or ~3.7 billion) has internet access. This number can only go higher as both the population and percentage of the population gaining access are projected to grow significantly.
We must recognize, that information and advice is delivered for the masses, not custom to the individual. This leads to heuristics, rules-of-thumb. This advice tends to be decent rules, but applied recklessly:
- Every retiree should have a 4% withdrawal rate.
- Never take on debt.
- What is your number? (those goofy commercials with people walking around with random retirement dollar amounts)
- Advice from questionable sources who rely on this “advice for the masses:” My work colleague said to do this. My cousin read an article on that. My buddy watched Jim Cramer on TV and he said this.
A great example is the famous radio and TV personality, Dave Ramsey. He seems to be a great guy, well informed, and extremely funny. His philosophy is no debt, whatsoever. He has a seven step program. This program has no flexibility. You must follow the steps verbatim, no compromise. He represents that it’s for everyone. Now, is it a positive and beneficial program? Absolutely. If your finances are an absolute mess and you have no direction or financial plan, this program will definitely improve your life. But, is it designed for you? Absolutely not. And, if you got Dave’s opinion on it (off camera, of course), he’d agree. He knows it’s a solid program (for the masses). He knows it’s not a financial goal plan (for an individual family). It can’t be. He couldn’t sell it globally if it were. The key is to have perspective on the difference.
A final note or caution on access. Be wary of scams and frauds on the internet. They are prevalent. Scammers posing as the IRS to get your personal information. Thieves creating websites to front as your bank to steal your data. Click here. Click there. Be cautious. This activity will only increase over time as two things happen. The population gets older on average with continuing advances in healthcare and lifestyle awareness. And two, an increase in opportunistic creeps lacking patience and ethics. Again, be aware and be cautious.
Financial planning is not about answers as the internet can make it seem. It’s about guidance, counsel, and education. What are the pros and cons of various decisions and actions? It’s not about abdicating or delegating your responsibilities, it’s about having an accountability partner. When decisions are black and white, no problem. When they are more gray, what to do? How to choose? How to stay committed? A great financial planning process is about staying the course, working the fundamentals within your control, and adapting as life inevitably changes.
There’s a great quote by Derek Sivers, “If information were the answer, we’d all be billionaires with perfect abs.” Information is great. It’s a start. Has the internet fooled us into thinking we’re wise and successful if we simply know more?
- There is quality information out there. It can be useful.
- Finding answers and advice is fast, saving us time.
- Information is accessible and affordable to almost all.
- Internet advice is and has to be “designed for the masses” (i.e. not custom to you)
- What is fact? What is opinion? This distinction is tough.
- Information arrives exponentially faster than it can be monitored. Oversight is lacking.
- The internet (specifically headlines) operates on fear-tactics and click bait. Wisdom? No.
- Short-term is valued. Long-term perspective nearly always sacrificed.
- At its worst, internet “advice” is used as a front or gateway to various frauds and scams.