There are some people that want to assume control of their finances by reading a book or consulting a financial advisor because they were smart enough to realize that they’re not financial savvy. But you must be aware that there are several challenges and pitfalls when choosing an advisor.
There’s also a problem when reading to learn how to manage your finances. Although reading a book is good and fundamental to your learning process, you can find sources not too reliable and get misinformed and that is something to avoid at all costs.
You may think that any renowned investment guru would make you rich but beware of that. I remember one formerly bestselling book about personal finance that gave the advice to “Buy disability insurance only if you are in poor health or accident prone”. There are two major problems with that statement. First, how in the world would you find an insurance company that is concerned on making a profit that will extend a disability policy once you have fallen into poor health? And second, can you please tell me how would you know when you are accident prone? It seems to me that if you follow this kind of advice you will need the help of your horoscope to see disabilities coming.
Consider also the famous investment seminars offered everywhere. These seminars promote themselves promising huge returns that don’t seem credible. Most of the time this seminars promise you will have returns as high as 20% per month on your investments and comparing the annual return of 10% the stock market generates over long term, you can easily spot some kind of fraudulent publicity.
This is why you have to understand how all those investment gurus get so popular even with visible defects in their advice. In most cases this gurus work the media and given that many members of the media are financially illiterate themselves, they get great coverage and publicity and get quoted in the press and get invited to renowned talk shows.
Be aware that talk shows and the media in general provide useful information on a wide variety of topics, but sometimes bad advice appear. Don’t assume that just because someone with something to sell is getting good publicity is going to be a good advice to you. It can only be a good job on public relations and marketing.
More important, remember that virtually all the newspapers, magazines, web sites, television, radio, etc. are completely dependent on the money from advertisers. And in some cases these advertisers are the ones dictating the content you read, listen or view in the media.
You may be wondering how can you identify or separate good publications from the biased publications and following are some ideas on the subject.
First, consider how dependent on advertising a publication is. For example, most of what is published on the internet is driven by advertisers. Many of the sites publishing investing advice on specific stocks are derived from brokerage firms looking for more clients.
Your feelings must always be involved to determine if some publication, television show or radio program is oriented to consumers and if you believe they’re looking for your interests or the advertisers’. For example, if you are reading a car publication and you see a lot of auto manufacturers advertising, is that publication talking about the importance of saving money when buying a car or is it just telling you to buy a car by all means?