When I was financially illiterate*, not so long ago, I tended to trust my family, friends, and colleagues, with investing advice. It’s the “easy way” for those of us who do not want to learn about finance: follow what your parents or colleagues tell you.
After more than a year looking seriously into my financial situation, I’ve reached the conclusion that it’s a really bad thing to ask colleagues for financial advice.
First of all, everyone’s situation is different, and just because one of your colleagues has found a scheme that works for their family does not mean it will work for you. This is even more true for someone in my situation, where as an expat it is likely that my colleagues do not share my nationality, and have different tax implications to their investments (typically, as a French expat, the advice I would get from US expats in Japan never really applied to my situation).
But, more importantly, when we’re talking about Early Retirement, colleagues are the last people on Earth you should ask for financial advice! As I’ve read on other blogs, you don’t see successful investors talking around the coffee machine about their great investments: successful investors are financially independent and have left the fracking company already.
In other words, would you take financial advice from your manager, who’s way older than you, probably makes significantly more than you, and still has to be working here with you? I wouldn’t. Clearly, if he knew what he was doing, he wouldn’t be working here anymore.
I get that there has to be some employees in a company who are either Financially independent, or on their way to become financially independent, but they are certainly not the majority. I’m looking at my manager who’s been working in my company for more than 10 years, and I think to myself: “given how good this company’s done in terms of stock over the past 10 years, this guy has clearly been doing something wrong financially if he still needs to work here”. That’s one guy I would not take investment advice from.
As I reminisce from my early steps into investment, right when I signed for the RL360 scheme (one of the biggest investment mistakes of my life, but also a great wake up call back then), I also recall some of the comments I got from my colleagues and friends back then.
Manager: “I have an adviser similar to that. I opened accounts with them for my daughters, I send the money on a monthly basis. all you have to do is find a good adviser”.
Colleague #1: “I make enough money that I don’t have to think about it. The company stock has been doing crazy good so far”
Colleague #2: “I was burned in the past by my former company stock and weird investment schemes. I sell all of my stock as soon as I possibly can and store it in the bank as cash”.
Friend #1: “I’ve been trying a somewhat risky investment in Brazil”
Friend #2: “Bob’s been doing Forex trading. He made +20% on a great bet on the euro versus the Yen”
All of these are real comments I received by the way. There all wrong in a way or another. Some of my friends or colleagues thought they were being clever by doing Forex, or putting a large sum of money in some risky scheme that had been suggested by their banks. Other thoughts that my issue was not with my investment choices at the time, but with my adviser who was not a great guy. Keeping with similar high priced products, but switching investors, would solve the problem. Others had had so many issues with investing that they put everything in cash. Last but not least, some of them were downright dangerous to their future selves, by betting everything they had on the company’s stock and the fact that they would have a high paying job for the rest of their lives.
At the time, all these contradictory statements made me feel I didn’t know jack about investing. All these people had weighed the pros and cons of many investment strategies, and found the ones that worked for them, I thought. It turned out, this was wrong. These people just didn’t think that much, and, like most of the world, had just gone with whatever their bank, or a financial “adviser” had recommended them. The most diligent had probably gone through 2 or 3 different products before choosing one.
None of my colleagues mentioned to me the bogleheads philosophy, or how low cost index funds are the way to go. This tells me a lot about how financially illiterate everyone around me can be, in particular my colleagues.
Again, they’re still working for a reason. When I see a guy who’s 10 year older than me, has worked at the same company as me for longer than I have, and is still not financially independent, I can’t help but know that they’ve done something consistently wrong with their investment.
Two colleagues of mine did mention things that stuck with me, though.
Colleague #3: “I’ve invested in a diversified fund at my broker’s. I’m not happy with having 100% of my retirement on the company’s stock”
Colleague #4: “This RL360 thing look extremely fishy. These guys will not do anything you can’t do on your own. Heck, they’re charging a fee for something you could do better by yourself.”
These 2 guys were right, and the more I look at their situation with my newly acquired lens of financial literacy, I can clearly see that these guys are on a better road for retirement than the others.
If you’re playing a video game and get stuck at a given level, who would you take advice from? The guy who’s been stuck at the same level as you for longer than you, or the guy who’s finished the game?
At the end of the day, for me, nothing helped more than taking things into my own hands and start understanding what this all was about. I also turned out that advice from strangers on the net, people who had no conflict of interest in giving me advice about finances, has been more valuable than what my family, friends, and colleagues, have told me in general. I’m am now much more confident about my financial future than I ever was, because I finally get an idea of what lies ahead.
* Not that I would consider myself “financially literate” today, but at least I’m not as bad as I used to.