How To Beat Financial Experts

The fact of the matter is that you’re unlikely to find a better-performing fund or an investor who can consistently beat the market. Why, then, are some funds so alluringly compelling? It’s simple—some managers do beat the market (short-term), and many investors are lucky. However, they rarely, if ever, continue to do so consistently. In this article, you’ll learn how to beat financial experts, so you won’t have to hire one anymore. 

No One Can Ever Predict The Market

Let’s take a simple example of an unscrupulous scammer who wants to sell his financial services to some naive investors.

He emails ten thousand people, telling half that Stock A will go up and telling the other half Stock B will go up. “This is just a freebie email to demonstrate my insider knowledge,” he might say. After a couple of weeks, he notices that Stock A has indeed gone up by chance.

He eliminates the Stock B group and focuses on the Stock A group, emailing them an “I told you so” note. This time, he splits the mailing in half again. Twenty-five hundred people are told about Stock C and twenty-five hundred are told about Stock D. If either C or D goes up, on the next cycle, at least 1,250 people will have seen him pick two stocks successfully. And each cycle will make the recipients increasingly awed by his “ability.”

Because we like to create order where there is none, we will ascribe magical stock-picking abilities to the scammer—even though it was literally by chance—and buy whatever “investment success kit” he’s selling. The same is true of the pages of “five-star funds” you see. Moral of the story: Don’t trust purported financial expertise just because of a few impressive stats.

I Bet You Don’t Need a Financial Adviser

If you’re looking for an expert who can help you invest, you just have to keep this in mind: you’ll be better off self-managing than seeking out a financial adviser.

Some of you might say, “But, Ramit, I don’t have time to invest! Why can’t I just use a financial adviser?” Ah, yes, the old outsourcing argument. We outsource our car cleaning, laundry, and housekeeping. So why not the management of our money?

Most young people don’t need a financial adviser. We have such simple needs that with a little bit of time (a few hours a week over the course of, say, six weeks) we can get an automatic personal finance infrastructure working for us.

Plus, financial advisers don’t always look out for your interests. They’re supposed to help you make the right decisions about your money, but keep in mind that they’re actually not obligated to do what’s best for you. Some of them will give you very good advice, but many of them are pretty useless. If they’re paid on commission, they usually will direct you to expensive, bloated funds to earn their commissions.

At my first job, my company offered seminars hosted by a former employee who was now doing investments.  He gave pretty standard advice (e.g., save in your 401(k), use a Roth IRA, etc.).  I went for a consult and set up a Roth IRA with him. He also sold me on the investment advantages of whole life insurance policies. Then my wife looked at the details and said, “Ummm…nope.” She called them up to cancel everything and get   our    moneyback. We got everything back, which was good, because initial outlays were almost five figures. Around that time, I got your book and moved my Roth from him to Vanguard . . . Haven’t looked back since.

—TOM T., 35

Red Flags To Watch Out For

Years ago, my friend Joe emailed me asking me to take a look at his investments. He suspected he was being taken for a ride by his financial adviser. Within five minutes of talking to him, I knew he was in a bad situation. Joe is a young entrepreneur with high earnings, so this adviser figured he was a meal ticket for the next four decades.

I told him the following:

  • There are certain keywords that are major red flags when it comes to investing, including “whole life insurance,” “annuities,” and “primerica.” Any one of those words means, at best, you’re almost certainly overpaying and at worst, you’re being scammed.
  • You’re being overcharged, and with your income, the fees you pay will be in the hundreds of thousands of dollars (or even $1,000,000+ over your lifetime).
  • You should move everything to a low-cost broker. You’ll pay lower fees and get better performance. When you do this, your adviser will freak out and use every emotional tool in his arsenal to prevent you from doing this. Therefore, communicate in writing.

Why I Recommend a Fiduciary Financial Adviser

If you’re currently working with a financial adviser, I encourage you to ask them if they are a fiduciary (i.e., if they’re required to put your financial interests first). Joe’s adviser was not a fiduciary; he was a salesman. That was instantly obvious by his recommendation that Joe (a single man in his twenties) “invest” in life insurance. The only reason for someone like Joe to have life insurance is if he has a dependent—not to fatten his adviser’s wallet.

If you discover that your adviser is not a fiduciary, you should switch. Don’t be worried about the variety of emotional tactics they’ll use to get you to stay. Keep your eye on the prize and put your financial returns first.

By contrast, fee-only financial advisers simply charge a flat fee and are much more reputable. (Neither is necessarily better at providing good investment returns, or your top line; they simply charge differently, affecting your bottom line.)

Oh jeez. I lucked into a one-time windfall and tried to do the “smart thing” by using a financial      planner recommended by my bank   (at that time Comerica—may they die a painful death). He put me in terrible funds that both underperformed    the S&P 500 *AND* had insane fees. Lost about30 percent of my money. Eventually moved everything  to Vanguard Index Funds (in a brokerage account I set up myself with   Vanguard). No regrets about the move. Nothing   but regrets about the wasted time and money “trusting a professional.”


Key Takeaway

The key takeaway is that most people don’t actually need a financial adviser—you can do it all on your own and come out ahead. But if your choice is between hiring a financial adviser or not investing at all, then sure, hire one. People with really complex financial situations, those who have inherited or accumulated substantial amounts of money (i.e., over $2 million), and those who are truly too busy to learn about investing for themselves also should consider seeking an adviser’s help. It’s better to pay a little and get started investing than to not start at all. If you’re determined to get professional help, begin your search at the National Association of Personal Financial Advisors ( These advisers are fee-based (they usually have an hourly rate), not commission-based, which means that they want to help you, not profit off their recommendations.

But remember, many people use financial advisers as a crutch and end up paying tens of thousands of dollars over their lifetime simply because they didn’t spend a few hours learning about investing. If you don’t learn to manage your money in your twenties, you’ll cost yourself a ton one way or another—whether you do nothing or pay someone exorbitant fees to “manage” your money.

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