There’s a bit of an issue I have noticed among personal finance experts. Many of them have gotten wealthy by selling advice to others rather than by using their own advice. It is a rich irony (pun intended) that the people telling you how to build wealth did not, in fact, build their wealth in that same way. This doesn’t imply that their financial advice isn’t useful, only that we don’t know if it’s useful.
Why? Because personal finance is one of the few industries where you can look successful without knowing what you are talking about. You can be rich and not know a thing about money management. However, this isn’t true in most other areas of life.
For example, find me a bodybuilder who doesn’t work out or a world-class musician who has never practiced. That’s right. They don’t exist. The proof of work for being a legitimate bodybuilder or an incredible musician is too high to be faked. Even those people that take shortcuts (i.e. steroids for bodybuilders) still have to put in work to see results.
But when it comes to money, this isn’t true. Because you can get money in so many different ways. For example, you can get it by being a good salesperson, a good marketer, or just by being lucky (i.e. family, lottery, etc.). However, you can claim that you got it for a completely different reason and then use that reason as “proof” of your skill. And because no one is going to have access to your financial records, they won’t be able to prove otherwise. Do you see the problem?
This is how someone with money can market themselves as an investment guru without knowing much about investing. It reminds me of this incredible tweet from Ramp Capital:
Though Ramp was joking, this kind of marketing happens more often than you might realize, and without the “by adding $45k to my brokerage account” disclosure.
This is why I am skeptical of courses, books, etc. that promise an easy path to wealth. This is especially true among traders that sell their “secret” methods to getting rich. Because if their methods actually worked, why would they need to sell them? Exactly. They wouldn’t. The people who actually have trading secrets lock them away with NDAs, strict employment agreements, and a world-class legal team. If that doesn’t tell you something, I don’t know what will.
What I really would like from a course, book, etc. is some honesty. Just tell me that the way to get rich is to sell a bunch of products to other people and then show me how to do that. This is probably why Jack Butcher’s Visualize Value brand has taken off. He’s created a product on how to create products. Even if you don’t agree with his work, at least it’s true to itself.
Of course I am not implying that all popular financial advice isn’t valid just because it’s popular. After all, I can’t blame the Dave Ramseys and Suze Ormans of the world for being successful at selling their ideas. But I can say that popularity doesn’t necessarily mean good advice, only good marketing.
To know if the advice was good, we would have to follow one group of people who used it and compare their results to a similar group of people who didn’t use it. We would need a control group. Obviously this isn’t feasible, so we have to guess. We have to use logic. But, lots of ideas that seem logically right aren’t even followed by the people we might expect to follow them.
For example, if diversification is so great, then why does Harry Markowitz, the pioneer of modern portfolio theory, not use it? If we should invest in index funds/ETFs, what does it say when Michael Kitces, one of the most knowledgable financial advisors in the industry, invests most of his money in his own businesses?
Of course Markowitz and Kitces will say that what works for them probably won’t work for other people. This is a fair point. You and I aren’t Harry Markowitz or Michael Kitces. But it’s still feels slightly concerning when titans in academia and industry follow a different set of advice than the rest of us.
After thinking about this idea more, I started to wonder whether I practice what I preach on Of Dollars And Data. Has my work been consistent with how I built my wealth? As of today I can say “Yes.” Over 95% of my net worth has come from using my labor income to buy income producing assets (mostly stock, bond, and REIT funds/ETFs). That’s it. I wrote the post Just Keep Buying, my core financial philosophy, back in April 2017 and have followed that advice ever since.
Nevertheless, about 5% of my net worth has come from earnings derived from ads and affiliate partnerships on this blog, most of which occurred this year. If this trend continues, I expect an even larger percentage of my future net worth to be derived from this blog. For example, if I increase my ad/affiliate earnings or release an e-book in the future, then it is very likely that even I will fall victim to “rich as I say, not as I do.”
Yes, I technically have nudged people to create their own products (see section 9 of this post), but it is not a core part of the Of Dollars And Data ethos. I don’t want to be the “you have to start a side hustle” guy. There is already enough negativity around traditional career paths and I don’t want to exacerbate the situation by calling for even more struggle porn. The mental havoc of “you should always be grinding” isn’t worth it. Just invest properly and enjoy your life.
But then again, why would you listen to me? I’m the guy who has been doing the exact opposite of this over the last four years. I’ve been nonstop grinding every week for 215 weeks straight now. Through breakups. Through death in the family. In sickness and in health. Yet, I’m out here preaching “invest and enjoy life.” Maybe following your own advice is harder than it looks.
Thank you for reading!
If you liked this post, consider signing up for my newsletter.
This is post 215. Any code I have related to this post can be found here with the same numbering: https://github.com/nmaggiulli/of-dollars-and-data
Why Are Over 320,000 People Falling in Love With This New Investing App?
With volatility rising, billionaires are increasing their allocation to real assets—among them, blue-chip art. According to KKR, they’re diversifying over 50% of their portfolios into alternatives on average.
The only problem? Adding high-end art to your portfolio could cost over $10M. That’s why tech entrepreneurs invented Masterworks.
This online investing app lets you access this billionaire favorite asset without breaking the bank. Over 320,000 members have fallen in love with Masterworks. And they raised $110M from their Series A and secured a $1B valuation.
(Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers click here.)