Bad Investment Advice Is Everywhere

I'll admit it. I'm rankled by a recent article in one of the biggest financial media platforms out there. Out of respect for the author, who is only sharing his opinion, I won't name names. But I will take his argument apart piece by piece because it is harmful for investors.

Here are a few sound bites from this egregious article.

"...this historic bull market, which, if it continues, will enter its 11th year—11 years!—come March. Vast amounts of wealth has [sic] been created, lifting many boats; some folks have gotten even bigger boats.

But most Americans—perhaps you—haven’t benefited much. 54% of middle-income households (defined as income ranging from $48,000 to $95,000) don’t have enough saved to maintain a decent retirement. That’s the same percentage as in 2010, when the stock run-up was in its early stages, according to a study by the Center for Retirement Research at Boston College.

What happened? Why have so many Americans been left out? The study blames the usual culprits: high debt, surging and often unforeseen health care costs, and investment mistakes."

The article continues...

"Let’s focus on the last issue, investment mistakes. Folks seem to forget that even with the market’s incredible run since 2009, there were two devastating crashes within the space of a decade: 2000 to 2002, when the S&P 500 fell 49% over 30 months and an even bigger disaster between 2007-09, when the S&P 500 plunged a staggering 56% in just 17 months.

Some investors got burned in the first crash; others, who loaded up on things like housing and mortgage lenders, got nailed by the second one. Some poor souls, no doubt, were hit twice."

Here it comes...

"The net effect of this is that millions of retail investors, spooked by the market’s one-two punch, have stayed away—thus missing out on what may turn out to be a once-in-a-lifetime gain. Hindsight being 20/20, in retrospect, had investors simply closed their eyes and hung on during the carnage of a decade ago—turned off CNBC, stop opening their 401(k) statements, not allowing their emotions to get the best of them—they would have more than recovered."

If you read that last paragraph carefully you'll notice that the author is blaming investors for the mortal sin of trying to protect their life savings. Instead, the author advocates a strategy where investors simply close their eyes and take the pain. Well I don't know about you, but that seems like dangerous advice to me.

"A survey of millionaires by Spectrem Group found that wealthy Americans “are more likely to increase cash and bonds than stocks in the next year,” and “may be amassing dry powder for better opportunities to buy into the market.”

Here's the advice...

"All this contradictory noise—it’s not too late to get in the market, yet the “smart crowd” is getting out—is bound to confuse.

Both views lead to another classic investing mistake: Each suggests that investors can time the market, when in fact, no one has shown the ability to do so on a consistent basis. Even the greatest investor of the past half-century—Warren Buffett—calls market timing a fool’s game."

Cue the obligatory Warren Buffett quote.

“I never have an opinion about the market,” he has said, “because it wouldn’t be any good.” So if the Oracle of Omaha can’t time the market, what makes you think you—or the blow-dried pundits on TV—can?"

The author ends with a dystopian view of the future for retirees.

"All of this suggests that uncomfortable choices loom on the horizon: Working longer. Accepting a lower standard of living. Perhaps both. Don’t worry if that proverbial rising tide of a growing economy and stock market didn’t help you very much. Your goal now is to make sure you’ll be OK if, one day, that tide goes out."

Did you catch that? The author says that the answer to dealing with the coming recession and bear market is to "Work longer. Accept a lower standard of living. Perhaps both."

That's not what I tell my clients. I teach them how to play solid defense and protect what they have worked a lifetime to accumulate.