Giving Financial Advice to Others

Yesterday I wrote about debating others and trying to convince them that libertarianism is the way to go.  Today, I want to discuss the topic of offering financial advice to others, particularly family and friends.

My general advice here is to not give advice, unless you are asked.  I give out some financial advice on this blog, but it is not meant specifically for family and friends.  It is for the general public.  Most people reading this blog are doing so because they were searching for something on the topic.  It may or may not be what they were looking for, but if they found it through a simple Google search, then it must be related to what they were inquiring about.

For family and friends, it is usually better to avoid giving too much advice.  If someone wants help, they will find a way to ask you.  You can make it known in a subtle way that you are available.

The only success I've had in influencing people's financial decisions is by discussing something and stimulating their thoughts enough so that they go out and do their own research.  But you have to realize that this will not happen with most people.  Most people are living the daily grind and are probably not interested in economics and financial markets the way you are.  They are probably not interested in libertarianism and Austrian school economics (although the number has grown quite significantly).

I have also had a few people come to me and ask for help in setting up a portfolio.  They are not usually looking to understand anything.  They just want to make sure that their money is in a good place.  While I certainly try not to steer anyone the wrong way, it makes me nervous that they are willing to practically hand over control to me.  It makes me nervous because that means that a lot of other people are doing the same thing, but they may be going to people who are steering them the wrong way.  I am not saying it is intentional, but just that there is a lot of bad advice being given and taken.

I have also had casual discussions with people when there is a lot of news in the financial markets.  For instance, after the huge stock market decline in late 2008 and early 2009, I would say to people that I wasn't really that surprised by the whole thing.  I thought a severe recession was coming, but I just couldn't predict when.  Then I have people tell me that I should have told them what was coming and told them to change their investments.  First, it is not like I could have predicted everything perfectly and timed everything right.  And second, and more importantly, these people would not have taken my advice at that time anyway.

You can try to give financial advice to others who don't ask, but most friends and family will simply not listen.  They will blow you off.  It doesn't matter if you tell them to get out of credit card debt or if you tell them they should own some gold.  They are probably not going to listen.  They may even resent you later on because they didn't listen, even though they should be looking in the mirror.

If someone ever does come to you for advice on investments, I would not recommend that you try to speculate on the latest hot thing.  I would simply tell them to set up something similar to the permanent portfolio as described by Harry Browne in his book Fail Safe Investing.  This way, you are minimizing the speculation and the person can continue to use this strategy in the future, even if the economic environment changes and you are not around to offer more advice.