The World’s Worst Investment Advice

Investing can be a confusing landscape filled with both good and bad advice. Let’s count down with the three worst investment ideas to help you navigate the pitfalls.

1. Investing in Crypto

Cryptocurrency has gained significant attention, but it comes with substantial risks. One of the most concerning aspects is the lack of regulation, leaving investors unprotected. Additionally, celebrity endorsements can often mislead investors. The volatile nature of crypto, combined with the risk of losing access to your funds if you forget your password, makes it a high-risk proposition.

2. Declaring the 60/40 Portfolio Dead

The 60/40 portfolio, comprising 60% stocks and 40% bonds, has been a staple investment strategy for decades. Developed by Nobel laureate Harry Markowitz in 1952, this approach has seen its ups and downs. In 2022, the 60/40 portfolio experienced a significant decline, leading many to pronounce its demise. However, it’s important to remember that one year does not make a trend. Over the past 30 years, the 60/40 portfolio has delivered an annualized return of 8.23%. Don’t be too quick to discard a time-tested strategy based on short-term performance.

3. Advising Young People Not to Save for Retirement

A recent paper published in The Journal of Portfolio Management Research suggested that young people should not save for retirement. Instead, the research proposed a lifetime saving consumption model, essentially recommending that younger individuals focus on meeting their current spending needs before saving for retirement.

This advice is problematic for several reasons:

Immediate Financial Demands: When starting a career, there are numerous demands on one’s income, including taxes, housing, food, transportation, and student loans. The idea of saving for retirement can seem daunting, but it’s crucial.

• Behavioral Habits: Regular savings, whether monthly or bimonthly, is a behavior that needs to be cultivated early. If young people get into the habit of spending their entire paycheck, they may find it challenging to save for retirement later.
• Long-Term Financial Stability: Many people in their 60s and older lack sufficient savings for retirement, leaving them financially vulnerable.

Instead, let me give some time-tested investment advice:

• Start Early: Begin saving for retirement as early as possible, even if it’s a small amount each month.
• Prioritize Savings: Learn to prioritize savings over unnecessary expenses.
• Avoid Expensive Purchases: Resist the temptation to spend on expensive items like new cars or luxury vacations until you have a solid savings plan in place.

Investing wisely requires careful consideration and avoiding common pitfalls. Steer clear of high-risk investments like crypto, maintain a balanced portfolio strategy, and start saving for retirement as early as possible. By following these guidelines, you can build a solid financial foundation for the future.