As much as we love them, we wouldn’t take our friends’ advice on real estate (unless they’re real estate agents) or our mother’s advice on the newest fashion trends (unless she’s in the fashion industry). When someone we love and trust tells us in a confident voice what we should do with our money, it’s tempting to listen. In this case, the best advice we have comes from Ronald Reagan, who famously said, “Trust, but verify.” That includes experts and pundits, too. You will always be the person who cares the most about your own money.
Do Mom and Dad Really Know Best?
Maybe yes, maybe no. Your parents no doubt have your best interests at heart, but if they haven’t rigorously taught personal finance to themselves, studied it more formally, or learned it on the job, this may be a case of the blind leading the blind. Don’t be shy about asking your parents why they’re making the recommendations they are. It could start a dialogue that helps the whole family.
Don’t Trust the Pundits
Experts are often given a limited amount of time to talk, especially on TV, which means that they aren’t able to give all the caveats they’d like. “Now is a good time to enter the market” may be shorthand for, “Now is a good time... if you have money you won’t need for over five years, are under the age of 50, and are under-allocated to stocks in your portfolio... to invest in the market using low cost index funds or target-date retirement funds.” Lots of important detail can get lost when financial pundits are quoted in the media due to time or space constraints.
Think Twice Before Succumbing to Peer Pressure
We often overhear conversations between regular people about “deals” and “can’t-miss investments” that sound like pig Latin to trained ears. In our society, there is so much shame around not understanding the topic of investing that often, when one person starts confidently talking about what he or she is doing with an investing portfolio, people start nodding their heads seriously in agreement. We’ve noticed that, a good deal of the time, no one really knows what he or she is talking about, including the person imparting the “wisdom.”
Do Your Own Research
We’re not saying you should immediately disregard tips that you receive from your loved ones, pundits, or anyone. We are, however, saying that you should evaluate each and every tip on your own to see if it makes sense. To check out a mutual fund that someone has recommended, we like using the lookup tool on Morningstar.
Again: No one will ever care about your money as much as you do. While it’s fine to listen to the opinions of others, make sure you only take actions with your money that you believe are right for you, and never hesitate to ask questions.
Tell us in the comments: What's the biggest influence on your money decisions?