Giving financial advice to friends is always tricky. One word: Don’t.
Friends who give financial advice willy-nilly, and especially the latest stock tips are potentially trickier. Two words: Run. Slowly (so as not to attract attention to yourself).
The funny part is that unlike some of the better known Personal Finance bloggers out there, I am anonymous. My friends and family don’t know about this blog. Unless they come across it and read a lot to put two-and-two together, they will never know. Hence I’ve always found it weird when people ask me for advice out of the blue. I’m never sure if they just need to talk to someone, or if I’ve unintentionally said some stuff in the past that encourages them to approach me.
Friend #1 approached me when his daughter was entering Kindergarten and he wanted to know all about 529s. How much to put in it, what to invest in and so on. This was the very first time I was asked for advice and I suspect I went a little overboard, even though I deliberately tried not to. I gave him a 2-minute version of what I did and then asked him to do some reading on his own. I also suggested he should look into his asset allocation and worry about putting funds away for retirement before college. Why? Because you can get a loan for college but you can’t get one for retirement. Also, your kid will live longer than you and can pay off their own loan themselves if needed.
He gave me a look like I had grown another pair of ears. I promptly handed him two books: the Bogleheads Guide to Retirement and All About Asset Allocation. I asked him to read the first few chapters of the second and as much of the first as he liked. Then I could be his sounding board and help him plan out a strategy if he so desired.
I didn’t hear back for two whole months.
Finally, I realized that the books were gathering dust and I asked for them back if he was ‘done’ with it. We never brought up the topic again. To this day I don’t know whether I came on too strong, or too soft or maybe he just wanted someone to give him an easy answer he didn’t have to think about.
The Future Pensioner
Friend #2 had been rebuffed by a colleague who “didn’t want to talk about money as it was private”. However, he was worried about retirement and really wanted someone to look at his portfolio and see if everything was “okay”. After my previous experiences (there were a few more), I didn’t really volunteer and kept my mouth shut. Unfortunately, he kept pressing and finally, I gave in and looked at his portfolio. To his credit, he laid everything out without hesitation and showed me all that he owned, including a pension he would receive from his employer. He was already partially vested but would be fully vested in another decade or so.
I laid out the idea behind asset allocation in a very simple way and suggested getting rid of some funds to simplify his portfolio. He also had a bunch of individual stocks that he had invested some ‘play money’ in and wanted to add more. I cautioned him against that and instead suggested that I would personally add more to the index funds if it were me. He got started with Personal Capital and added his accounts right there in order to get a true picture of his net worth. Both of us went home happy and content with what we’d accomplished.
How it ended up
When I met him a few weeks later, he had sold off the extra investment in the index fund and bought the individual stocks instead. He had also deleted Personal Capital due to concerns around security and gone back to reviewing his accounts one by one.
Six months later, he pointed out that while the S&P 500 index fund was up 10+% for the year, he had grown his $15,000 investment into a $160,000 one in the meantime. He had then sold off the stocks and dumped the majority of the proceeds into making additional payments towards the mortgage. To be fair, the stocks he’d invested in were in his industry niche and so he could research what they were working on and estimate whether they’d make money or not.
Naturally, he came out ahead than if he’d listened to me and stuck with boring old mutual funds.
1. It’s not personal
You may be the most well-intentioned of friends. However, folks have a lot going on and they may want simple answers without having to put in the effort. They may feel that they just don’t “get it”, even though all it needs is a little bit of work to understand and get started. Yes, it’s a little weird to me too, that one would spend 40+ hrs of their week working but not have a fraction of that available to think about their portfolio.
In any case, the choice to follow your advice – or not – is up to them. Never assume that they will always accept your offer to help or your advice when you do.
2. There are many roads to Rome
You may feel your way is the right way, and you are probably correct especially if you use index funds like I do. However, shoving it down your friends’ throat is not going to change one damn thing. Folks still do what they want to do, and sometimes they still need to do it their way even though it’s not the most logical. I do feel that I’m a firm believer in the index fund space and it may be that it acts as a pair of blinders that I don’t see other opportunities as much as I should. Case in point: my friend above.
3. Listen to them
Empathize and really listen to them. They may or may not be comfortable revealing the minute details. Be sensitive and don’t push it.
They may feel bad about decisions made in the past or their inability to comprehend what to do in the present. Don’t judge. Tough love may be needed but not right then and there.
Ultimately it is your friend’s decision on what to do and how to go about it. You can also always keep it simple: don’t offer any advice at all. You may come across as an a***ole for not wanting to help, but it may be the safer approach in the long run. Now, I try and stay out of financial discussions completely. If someone pointedly asks, I try and deflect the question. If they persist, I explain what I do and leave it at that. It’s not perfect, but keeps the peace and helps avoid any potentially uncomfortable situations.
What about you? I would love to know about any experiences when you tried to help friends. Let me know in the comments below!