The beats, they keep on coming.
2020 has been rough. And to make matters worse, some of the financial advice given out during 2020 has been awful.
Here's our list of the worst financial advice in 2020.
The Worst in Personal Finance
Let's start by looking at some of the terrible “day-to-day” advice. This is bad guidance that could affect your everyday lives and choices, paychecks, or monthly bills.
Here's some of the worst personal finance advice we've seen so far in 2020.
You only live once…so spend it all now.
A surprising death can leave us stunned, and Kobe Bryant's passing in January was no different. And then the pandemic came and with it, more death. So many sullen reminders that death can come knocking at any time. And as such, we ought to take advantage of the time we're given.
But unfortunately, that has led to some short-sighted financial advice in 2020. For example, let's look at the advice of “you only live once…so spend your money now.” It's philosophical, sure, but it's also dumb.
While tomorrow isn't guaranteed, it is highly probable. And the smart money ought to rely on those kinds of high probabilities. You don't have to save every dollar for retirement, but you should find a smart balance between enjoying today and saving for tomorrow.
We plan for our futures all the time. We receive education to achieve more success in the future. We invest in our relationships to have strong social bonds as we age. Personal finance should be no different.
If you want to approach it scientifically, consult an actuarial table. The average 40-year old American has another 38 (male) to 42 (female) years of life in front of them. A “YOLO” attitude of spending your money right now will likely lead to regret in the future.
“You gotta support the economy!”
When the COVID shut down began in March, many experts realized that our economy would take a huge blow. Business revenues would drop; unemployment would increase; growth would slow.
So we began to hear politicians and other leaders imploring average citizens to “support the economy.” This is a euphemism for “spend some money right now!” This is not one-size-fits-all advice. Individuals have been facing unique financial challenges during 2020. Money is tight, and next week's paycheck isn't promised.
Support your family. Support your loved ones. But don't buy a Jet-Ski because a politician asked you to “support the economy.”
The economy will recover, and perhaps your dollars will play a small role in that recovery. But don't sacrifice more important money needs to “support the economy.” There's nothing wrong with first ensuring that you and have your loved ones have the support they need.
“Stop buying Item X.”
This infamous personal finance trope of the past decade continues to rear its ugly head in 2020. The traditional targets have been lattes and avocado toast, but plenty of financial “experts” have items they love to hate.
The thought process behind the idea—that little expenditures can really add up over time—is fine. But any advice that focuses on such small items is usually just small advice. Why do I say that?
First, this advice misses the forest for the trees. Focusing on small items neglects our most consequential financial choices— like living expenses (rent/buy), transportation, and educational costs. Who cares about saving $3 on a latte if you're spending $1000 too much on rent?
Second, this advice ignores conscious spending. It's the idea that spending on “extras” is perfectly fine, as long as you're conscious of it. If you love lattes, then buy lattes! That's great! Just make sure you know how that spending fits into your overall budget. It's really that simple.
“Don't pay off your credit card…”
“…it'll look like you can handle some debt, and it'll increase your credit score.”
It doesn't matter what year it is. This is awful advice. Credit card debt is dangerous. You'll do well to stay away from it. And that means paying off your credit card in full every month.
Credit card companies and credit agencies do not give you credit (no pun intended) for carrying a balance from month-to-month. It's plain bad.
“You HAVE to go to college.”
I went to college, and I'm positive it was the right move for me. But that doesn't mean it's the right move for you. And it certainly doesn't mean it's the right thing to do in the midst of the pandemic's semi-shutdown.
Many colleges are still charging full tuition, but not providing the full educational or cultural experiences with university life. Would you pay $60,000 to take courses via Zoom? Would you live on campus, even though social interactions are strictly limited?
Universities have an immensely difficult task during this pandemic, and students face tough choices. It applies to undergrads, medical students, MBAs…the whole gamut. At the end of the day, there's a financial decision involved: is this 2020's educational experience worth the money?
The Worst in Investing
Many of 2020's biggest financial headlines focused on investing and the stock market. It's easy (but not always accurate) measurement of the economy. So let's take a look at some of the worst investing advice in 2020.
“Invest your money right now!“
The stock market went through initial turbulence in late February, dropping about 12% in value from February 20 to February 28.
Some stock market “experts” used this drop to proclaim, “Stocks are on sale…buy right now!” Their logic is that stocks were cheaper than a week before, and any sale is a good sale.
But in the next three weeks, stocks would drop another 30%! If you had listened to those “experts,” you would've seen your investment immediately lose 30% of its value.
The point is this: timing the stock market is a loser's game.
“Pull all your money out!”
Other stock market “experts” looked at the tumbling COVID economy and saw nothing but doom. And thus they suggested that people pull their money out of the stock market, for sure we'd soon enter a depression!
But just like the last section's experts, these folks were wrong too. Sure, the market dropped by about 35% in March. But it has since recovered and is actually up in 2020 (as of this writing).
When you make a big move like this, you have to be correct twice. First, you have to predict when to remove your money from the market correctly (i.e., predict a market drop). But then you also have to identify when to buy back in (i.e., predict the market's bottom).
This is very hard to do, even for the so-called experts.
COVID-centric stock picks
Some stock-pickers saw (or think they saw) specific opportunities in the early weeks of COVID-19. And in hindsight, who can blame them?
Looking backward, it's easy to see that companies like Zoom and Netflix, and Peloton would do well when we're all pent up at home. But hindsight is 20/20. It's much more difficult to have the foresight or the ability to predict the future accurately.
For each correct prediction (“buy Zoom!”), there is someone out there on the opposite side of that trade. Each stock purchase requires another person to sell their stock. So while some investors correctly bought Zoom, an equal number of shareholders incorrectly sold Zoom.
The point is this: predictions are hard. So if someone comes to you with sure-fire investing advice, ask yourself, “Does this person really know what the future will look like? And why do other people out there believe the opposite?”
“If [insert candidate] is elected, the stock market will…”
Do you see a common theme in the terrible investing advice from 2020? People are bad at predictions. And predicting the stock market's response to the November presidential election is no different.
Don't believe me? I could make four coherent arguments right here:
- If Biden wins, the markets will go up. He has moderate fiscal policies and is likely to bring more stability to international relations and the global economy.
- If Biden wins, the markets will go down. His inevitable corporate tax hikes will decrease future corporate profits. And that means stocks are less valuable.
- If Trump wins, the markets will go up. It's exactly what happened last time.
- If Trump wins, the markets will go down. They're anticipating a Biden victory (based on polling data), and Trump's perceived instability will lead to more investor caution.
There you go. Four arguments. Come back in a couple of months, and I bet one of those four looks pretty reasonable. Does it mean I can predict the future? Or does it mean that lots of “experts” have a one-in-four chance of getting lucky?
Do not listen to fortune-tellers, especially if it's your retirement account on the line.
The Worst is Over
For all of our sakes, let's hope the worst of 2020 is over. But if more troubling events occur, keep in mind that some of the corresponding financial headlines will be downright terrible.
Now, I'm sure there was some good financial advice in 2020, right?!