Sorting Financial Fact from Fiction
Sorting Fact from Fiction: Financial wisdom is not about privileged information, superior intelligence, or absorbing more news!
We are exposed to many philosophies on how best to manage our money. Often the ideas we accept as true contradict each other. “Yes, I believe in diversifying my investments, but should I put all my money in gold since I heard from an expert that the stock market is going to crash?” This type of question is not uncommon.
Principles, however, are the guardrails for making wise decisions through unique and dynamic circumstances. Principles can help form our “truth filter” in a time when technology allows news and opinions — any opinions — to travel fast and loose. Just because you hear it or read it doesn’t make it true. Here are a few keys to sorting fact from fiction.
- The more extreme the information is the less likely it’s true. It’s not to say that extreme scenarios (like the Great Recession of 2008) don’t happen. But for every major event there are thousands of unfounded predictions that throw susceptible people off course. Consider which headline would gain more attention: “The stock market is going to crash!” or “The stock market is going to experience a normal amount of cyclical fluctuation.” News is meant to grab your attention and sell!
- If only you and a “select few” know about this information, consider that it may not be true. A convincing friend or trustworthy expert may claim to have the inside scoop, but information travels fast. If you think you have information not many others know about, you may want to evaluate further.
- Understand that information which appeals to emotions such as fear or greed is less likely actionable. Consider that the most successful businesspeople are constantly going against the grain. Warren Buffet says to invest when others are fearful and sell when others are greedy. This counterintuitive approach is more often appropriate.
- Always consider the source. This bias of information can sway our perceptions. News outlets need attention-grabbing headlines to boost ratings. Car dealerships need to emphasize the benefits and downplay the shortcomings of a car to sell it. Consider where you are getting actionable financial information. I reluctantly watched a doomsday economic video sent by a friend. It was sprinkled with enough truth to make me uncomfortable, yet incomplete conclusions were drawn to produce a message of fear. Additionally, any actionable strategies were awaiting only with a paid subscription to a newsletter that would give me information a select few know about. (Recognize a pattern here?) It’s hogwash. My profession is not exempt from this attention either. Our primary commitment as advisors should be to give financial advice in the context of life’s greater objectives. However, some so-called advisors misalign priorities. You must be wise as you decide on an advisor.
- Consult multiple trustworthy people without any “skin in the game.” Wisdom comes from trustworthy counsel, but don’t fool yourself by only seeking counsel from those who will tell you what you want to hear. “The way of a fool is right in his own eyes, but a wise man is he who listens to counsel.” (Proverbs 12:15)
- Can the information and your corresponding decision be founded on a principle that is always right, always relevant, and never going to change? That’s a question Ron Blue often poses and it’s worth posting on your refrigerator.
Financial wisdom is not about privileged information, superior intelligence, or absorbing more news, but rather aligning your decisions with sound principles…
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