Financial Advisors Correct The Internet

The internet is rife with financial advice, much of which is misleading. One common myth suggests that buying a Ferrari is a better investment than the S&P 500. This argument often cites a 12% annualized return for the S&P 500, which is presented as fake data. The actual historical return is closer to 7%, a figure that is backward-looking and doesn't reflect the current market environment where multiples are around 21X. In such an environment, the forward real return for the S&P 500 is estimated to be 2-3%, or even negative. This implies that the "get rich from buy-and-hold" myth is dead, making a Ferrari, like the 458 Speciale that reportedly returned 14% last year, seem more appealing. However, the advice to buy a Ferrari is not to be taken literally. The point is that expecting to get rich from lazy buy-and-hold investing in a chaotic market with high multiples will lead to disappointment. Most wealthy individuals did not achieve their wealth through simple buy-and-hold strategies. The notion that a high FICO score indicates that you've given banks a lot of interest is also challenged. A high FICO score doesn't signify financial unhealth; rather, it demonstrates responsible credit use. It shows that you are a reasonable and responsible financial decision-maker, not necessarily someone who has paid excessive interest. Wealthy people often use debt and maintain high FICO scores because a good credit score is essential for various financial services, including utilities and insurance. Treating debt as something to be feared at every turn is not a realistic approach to modern financial life. Another piece of advice suggests that small daily savings, like $5 a day or canceling a Netflix subscription, can accumulate to significant wealth when invested over time. While this is true, the "pro move" is presented as investing in oneself by learning a new skill, such as business buying and creative financing. The idea is to buy a profitable business with a small down payment, grow its profits, and then sell it for a much higher price, effectively replacing a six-figure job. However, this is likened to winning the lottery; while possible, it's not as easy as it sounds. Finding a profitable business, being able to source, buy, operate, and scale it, especially one with razor-thin margins, is a complex undertaking. This entrepreneurial path is generally not the initial step to building one's first million dollars. It should be considered after establishing a strong financial foundation, including funding Roth IRAs and emergency reserves. The idea of making money through game shows, like "Deal or No Deal" or "The Price Is Right," is also satirically presented. While there have been instances of individuals exploiting inefficiencies in game shows, this is far from passive income and requires significant effort and observation. The real arbitrage opportunity for young people is understanding the value of early and consistent investing to build wealth. The concept of using $50,000 to acquire a business with a high net profit, potentially even getting the seller to provide funding, is another idea presented. While some individuals effectively sell systems for this, it's often a marketing strategy. For those with their first $50,000, establishing a financial foundation through emergency reserves, Roth IRAs, and employer 401(k)s is emphasized over such high-risk ventures. Regarding financial advisors, simply putting clients into an index fund is not considered true financial advising. A comprehensive financial plan involves looking at emergency reserves, taxes, retirement planning, estate planning, insurance, and risk management. As one approaches retirement, these aspects become even more complex. While some fund companies may repackage S&P 500 index funds under different names and charge for the service, it's crucial to understand what you're buying and its true cost. The success of financial planning firms that openly advocate for index fund investing, without locking in clients, suggests that their value lies in providing comprehensive wealth management beyond mere asset allocation. Finally, the comparison of sports betting to investing is strongly refuted. Sports betting is gambling on an outcome, not investing in a future. Unlike investing in stocks, crypto, or real estate, where strategy and understanding the market are key, sports betting positions the individual as the "fish" or "mark." Casinos, for instance, actively prevent card counting because they aim to maintain their advantage. This highlights the fundamental difference between gambling and investing. The distrust of the stock market, often leading to a preference for real estate, is also addressed. While real estate can be a valuable asset, it's not necessarily where one should start. Active real estate investing, especially with multiple properties, is far from passive due to ongoing maintenance and tenant issues. For most people, especially those new to personal finance, consistent and disciplined investing in low-cost index funds, following a structured financial order of operations, is the most straightforward way to build wealth. While real estate can be incorporated, it should complement, not replace, a foundational investment strategy. The core message emphasizes a structured approach to personal finance, prioritizing foundational steps before venturing into more complex or high-risk strategies.