“It’s getting exciting now, two and one-half. Think of everything we’ve accomplished, man. Out these windows, we will view the collapse of financial history. One step closer to economic equilibrium.” – Fight Club
My financial adviser checked my balance – she didn’t manage to push me over. I’m sturdy and built low to the ground, The Mrs. says.
One of my biggest joys of having children is giving them unsolicited advice. For example, my daughter, Alia S. Wilder texted me the other day:
The Unsuspecting Alia S. Wilder: “ . . . also, Lars Úmlåüt (her boyfriend) and I met with a financial adviser about retirement and investment portfolios.”
The Evil John Wilder: (I Swear This Was My Actual Text Answer) “That’s like talking to a mechanic about your Gulfstream® jet. You don’t have any money. And this will be in next week’s blog.”
Yes, I really said that to her. The idea of needing a financial adviser when you don’t have any money is like buying flowers when you don’t have a girlfriend, at least until the restraining order expires. And The Mrs. was the one that christened Lars. After he cuts his hair, we’ll have to think of another name. Although if they get married, Alia S. Úmlåüt does have a ring to it.
It’s rare that a picture describes a concept so completely.
But the financial conversation continued.
The Still Hasn’t Seen It Coming Alia S. Wilder: “We have very little (money) but the financial adviser will help get us going in the right direction. Life is going to suck financially, but you gotta live like no one else wants to, so you can have the future everyone dreams of.”
The part that I’ve italicized above is the part that scared me when I read it in her text message. That’s nothing but pure sales pitch. It’s a good sales pitch, too. It sells the virtue of sacrifice now for future rewards. And it is a philosophy I fundamentally agree with. Deferred gratification is the key to most success – work hard now, and the benefits accrue over time. I wrote about that here (“Be so good they can’t ignore you.”-Steve Martin Plus? A sniper joke.). Steve Martin spent a decade learning and four years refining before he ended up in wild success.
To be great, you have to put in the time. You have to work. But the very best sales pitch will be like a virus – it will work into your brain. When you have your potential client quoting you? You have an effective sales pitch. Back to the texting.
The Sage of Wisdom John Wilder: “Get a 401k. Invest in stocks. Don’t mess with it. Ten words. It’s all you need to know right now.”
Alia and I had already talked about other investments – having a month’s worth of food around the house. Being prepared for emergencies. Having a set of jumper cables in the car. These are small things, but they can do everything from making your life more convenient when you accidentally leave the lights on, to saving your life when that first aid kit pays off.
The Probably Getting Irritated Daughter Alia: “We have a 401k. We are starting the stocks. And we’re treating investments like an expense.”
Investments like an expense? Where did I hear that before? Just from every financial adviser that tried to convince a Young John Wilder Who Had No Money to sign up for some sort of financial product. Strong the sales force is in this one. His sales technique was so good he’d managed to get a second slogan injected into Alia’s mind.
The force commissions are strong in this one.
Not Going to Let it Drop John Wilder: “No. Just the 401K. No other stocks. Pay off your debt first.”
As someone in the “Alia owes money to” category, I think I’d be a bit irritated if my loan wasn’t being paid back while Alia was investing in Elon Musk’s latest venture, a time machine that only Elon Musk’s hairline uses. But investing in stocks when you owe money (outside of a mortgage) is, well, silly.
Or was it the future? Musk’s mane mangles moments in the multiverse.
A 401k is different.
Why? Many employers match some percentage of what you put in one. The most common amount I’ve seen is a 50% match up to 6% of your wages. Said differently, if you put in 6%, the company will put in 3%. This is a good investment – you make an immediate 50% return.
Irritated As A Yak That Just Got Called A Weasel Noggin Alia S. Wilder: “That’s what (Financial Adviser) is there for. He works for (Company Name).”
Cool Voice of Experience John Wilder: “No. Don’t trust him. No individual stocks. Just 401k, and pay down your debt, until the debt is gone. Then add more to your 401k. Financial advisers are salesmen. And this company (After Looking It Up)? Whole Life Insurance? STAY AWAY.”
Whole life insurance has two components – life insurance and some sort of investment. It costs a LOT more than regular “term” life, but has the benefit of paying you back if you don’t use it. How can I tell that whole life is a bad deal? The salesmen get huge commissions.
For the record, he’s also sad he got caught.
The Feeling Like Napoleon Retreating from Moscow Alia S. Wilder: “No. They do more than investments. They look at the whole picture. He said he was going for more investments if we moved forward.”
The Not Needing to be a Psychic John Wilder: “No. Stay away. I’m sure he’s a nice guy, good sales patter, but you will regret dealing with people like that.”
Now As Defensive as the Maginot Line Alia S. Wilder: “It doesn’t hurt to get information and a direction on our future. (Company) is a Christian company for Christians to help with money management on all fronts.”
Rolling Like a Panzer Through The Ardennes John Wilder: “Sure. Just don’t give them any money or sign anything. He’s not doing this for his own health or because he’s a Christian. He’s doing it so you can help make his car payment.”
Enough of this Nonsense Now, Has to Go Back to Work Alia S. Wilder: “I appreciate your advice, Dad. I love you lots.”
Won’t Let It Rest Because Apparently She Kept Thinking About It During Lunch Alia S. Wilder: “So why are you so against investments? If you don’t mind me asking.”
Sweaty Back from the Treadmill And Smelling Like Teen Spirit John Wilder: “A 401k is an investment. I’m in favor. Paying off debts. Also an investment. Investments are smart, but individual stocks aren’t an investment, they’re speculation. Stock funds before your debt is gone? Stupid. Using Christianity to sell a service? Awful.”
What is an investment? When you’re young and paying off debt, pay off the debt. You need a financial adviser like you need a staff for your private lair underneath the volcano in the South Pacific. And for most people, buying individual stocks is similar to gambling. I heard one person make the comment – “I only invest in individual stocks if I can change the outcome.” As I recall, he was on the board of several companies, so he yes, he really could change the outcomes.
The overall market is different. It has had up years, and down years. If I’m going to invest in stocks, I’m going to invest in aggregated stocks, like an index fund or a targeted fund, which is what I have in my 401k. Yes, I have bought individual stocks. And, yes, I’ve lost money on them – not enough to change my life, but enough to change my philosophy.
There’s an eternity of good deals!
I’m not against Christian businesses – not at all. I’m not even against Christian financial advisers – Dave Ramsey (at least on radio) talks about his faith, but doesn’t use it to sell his products. Heck, the guy gives away his ideas on the radio daily. Does he make money? Absolutely.
What about Chick-fil-A©? I love Chick-fil-A®. The chicken sandwich is the best I’ve ever tasted, and it amuses me how people get bent out of shape that they give up a day’s worth of revenue every week because of their principles. When I’m in a big city do I go to Chick-fil-A™ because they’re Christian? No. I go there because the food is great. I go there because the employees are uniformly polite and neat. I go there because the stores are spotless.
I’m not even against financial advisers in general – but when a financial adviser is attempting to “help” people who don’t have money invest? I’m not a fan. I’d prefer they charged a fee like other professionals – that’s upfront, and I think those people really are on your side.
I later called up Alia. “Did you sign anything?”
“No.”
I relaxed. The world isn’t short of people who want your money. In some cases, they work really hard for it, like Chick-fil-A©. In other cases, well, commissions are powerful motivators.
I’ll stick with the chicken sandwiches, they’re better with mayo.
Dang. Now I’m hungry.
John Wilder is not a licensed professional adviser and you should probably think twice about taking his advice and consult with a competent adviser. Unless you’re his kid, which you’re probably not.
Good advice. My wife and I had a similar encounter with a slick financial adviser when we were in our early 20s. Good advise from my father kept us from getting locked into a bad decision. Guy wanted us to sign a contract that we would put $500 per month into a mutual fund for 20 years. Ha.
Me, too. It was funny how he didn’t understand that we wanted that bright and shiny future but WE HAD NO MONEY.
The best articles I ever read on this topic, a real wake-up call….
https://realinvestmentadvice.com/everything-you-are-being-told-about-saving-investing-is-wrong-part-i/
https://realinvestmentadvice.com/everything-you-are-being-told-about-saving-investing-is-wrong-part-2/
https://realinvestmentadvice.com/everything-you-are-being-told-about-saving-investing-is-wrong-part-3/
As always, thanks, Ricky!
In general, most people should stick to their 401k and stick to low cost index funds. Financial advisers are paid to sell products and those products that are most profitable are also often not the best product for their clients. The world is full of financial advisers who don’t know what they are doing and the ones who do know what they are doing are not wasting time trying to sell stuff to young kids like your daughter with no money. They are building hedge funds so they can buy their own island where they can entertain powerful guests with underage girls….
On the other hand, as someone who spent most of his adult life in the 401k, financial services and banking business, I can say that the old rules are not going to work for the future. The 401k is an investment for an America that no longer exists. Without offering any investment advice, I can say that investing in real property, real estates and precious metals like lead and brass, makes more sense for the future we are facing. Or as I like to express my investment philosophy formula now: 7.62×39>401(k)
My latest shipment showed up Wednesday.
If I were a gun owner, and of course I am not because guns are terrible, I would suggest that buying ammunition be any every month line item expense like your cell phone bill and mortgage. If I were a gun owner that is….
It is part of my UPS delivery driver’s work out plan. Ammo is heavy!
If you can afford it, invest into your 401K the minimum amount necessary to extract the maximum employer matching funds.
Don’t forget to save rainy day money in an accessible bank account. And try to build up a week’s worth of pay in cash.
Yes. Cash, in your house or wallet. You never know when things will get . . . interesting. But Aesop commented more below . . .
When I was a teenager my dad, thinking about my financial future, gave me an article to read on the topic of “compounded interest”. Unfortunately, the article was located in the pages of a Playboy magazine. Following Federal Law, I never read the article.
Reading a Playboy for the articles. I heard once that the Federal government paid for a braille version for the Library of Congress.
You can make your own jokes there.
My father’s financial advice: “you don’t need a budget. Budgets are plans for spending money. If you have to spend money (e.g., rent, mortgage, taxes), then you have to spend it, whether or not it’s in your plan. If you don’t have to spend money, then don’t spend it.” So, I had to wait until my mortgage was paid off to buy the ham radio gear I had wanted for forty years, but I had the money when I needed it to go through a divorce without imposing hardship on either of us. That was priceless.
See, I agree. If you need to buy it, and you have money, buy it. I haven’t had a car payment since 2000. Man, I feel free.
The entire stock market is a Ponzi scheme.
The theory is great. The execution is a roulette wheel, and the wheel man has a button to press once you’re hooked.
Don’t believe me.
Look at it from 1999-2000. Then again from 2007-2008. And again, in about 5 minutes, or 5 months.
I plowed money into a 401K. For the obtuse, it was in stocks.
After the second crash in a decade, I got out every penny I’d put in. The 300% of my investments that were wiped out, all the matching contributions I never saw, and 15 wasted years of steady saving, were chalked up to foolishness.
I’d have been better off investing in tickets at the horse track.
It’s crooked as f**k, and the fix is in.
And if government comes up short, your handy 401K is on the menu. Look around and see what that looks like in the real world.
Wait and see: it’s coming here five minutes after you least expected it, and you won’t get anything back.
Yes, pay down your debt. Especially high-interest debt.
Pay off your mortgage. It’s an albatross, though usually unavoidable.
Second, live on less than you make.
A lot less.
Lastly, invest.
Not in stocks, and not in bonds. Both will evaporate in tough times.
Get arable land.
Income property that pays for itself.
Precious metals that are in your hands, not shares of some guy’s Krugerands in Florida or Manhattan or Timbuktu, which will disappear in a tough crunch. Solomon Odonkoh (google him) is not your friend.
You want gold, silver, and lead.
And canned goods. The ones in the pantry, the #10 cans, and the olive drab cans from the gun store.
Gold doesn’t make you money. The point with it is it doesn’t lose money, ever.
An ounce of gold now is worth more dollars than it was in 1932, but it buys now nearly exactly what an ounce of gold bought in 1932, and 1832, and 1732, and 0002. What that tells the brighter folks is that your dollar is currently worth about $0.03, in constant terms since 1900. Or 1800. Learn that lesson.
But you can’t eat gold, and you can’t keep your stuff by throwing a can of peas at someone.
Hence, the canned goods. Both kinds.
If you have stupid amounts of money, go ahead and play the market like it was Monopoly.
When it’s over, your railroad and utility stocks from either place will be worth about the same in the real world.
Or, play the lottery, which is a tax on stupid people.
If you must contribute, whatever the limit on matching funds is should be your upper limit.
Just recognize that if the company or the market or the 401K investment firm or Uncle Sugar craps out, at any point between now and your retirement, you’ve pissed away that percent of your income away forever, as surely as if you’d just set it on fire in the fireplace every week. You might have noticed how iffy that many points of failure become over the coming 20-50 years.
Whereas $29/week in a shoebox gets you a 1 oz. gold coin every year, which will never turn into lead.
10 or 20 or 100 acres will always be that amount of land. (Unless you bought under a mudslide, downstream from a lava flow, or along the Mississippi.)
And a financial adviser, or a broker (even the one in HR pimping the 401K), is just an extended warranty or condo timeshare with legs: something you don’t need, which will never pay off, and will cost you stupid amounts of money before you figure it out.
I agree. But, the initial 50% still pencils out over time. My 401k has (very much) underperformed since I skewed conservative until 2012 and decided that no one was going to stop the Fed printing machine. Maybe ever.
As it is, my 401K has done well (most money went in starting in 2008, near the bottom). I pulled a previous job’s 401k out of stocks before the housing bubble popped. Yay!
I do plan for a range of outcomes. Lead for Mad Max world.
Gold for Feudal Future/Avoiding the Trains.
401K for that future where we tiptoe through the minefield and I get to retire in my cabin in the mountains without electricity.
I need more gold.
Good stuff, Aesop.
Americans love their beloved government overlords. The only time Americans get angry when the Gestapo shoots an unarmed American in the back is when the officer is black.
Americans don’t care if they must give their fingerprints to travel if Muslims do, too.
One reason Americans hate freedom now is that the media runs horrifying stories about a dangerous problem and downplays concerns about tyranny.
Another reason Americans hate liberty now is because Americans think freedom only benefits others and tyranny only applies to other people.
If you don’t wear shorts, you won’t care if shorts are illegal.
If you’re white, you might think that you’re immune from the police state.
If guns are banned, Americans think that they will be safe, but Americans don’t realize that gun bans apply to everyone.
Every problem has a knee-jerk reaction, but no one thinks about the unintended consequences.
If wages are low, Americans scream that the minimum wage must be raised. No one cares about prices rising or businesses closing.
If US exports are expensive, Americans say a trade war should be started. No one cares about prices increasing or exports falling.
If smokers die, Americans insist smoking must be illegal. No one cares about freedom or tobacco workers.
If regulations kill the economy, Americans say that there must be welfare.
If welfare raises the debt, Americans say taxes must be increased.
The problem with decrees is that eventually you end up living in a prison.
Now that straws are illegal, do you honestly believe tyranny has stopped? Do you feel safer? Do you think toothpicks or mouthwash will never be banned?
Americans don’t realize problems don’t require force. Americans do not understand that the free market can provide solutions.
Why not allow workers to decide what wages they will accept?
Why not boycott imports if you hate free trade?
Why not allow nonprofits to educate people about the dangers of cigarettes?
Can’t charities provide welfare for the poor?
Was there a minimum wage, trade war, smoking laws, and food stamps in 1920? Did Americans just starve to death in 1920?