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Simplifying Investing: Ignore the Ads

We’ve all seen ads with promotions such as these ones:

  • $4 stock trades
  • 7 mutual funds that have beaten the market for the last 5 years in a row
  • A free consultation with a financial advisor

It’s obvious that in each case somebody is trying to sell you something. After all, they’re advertisements. What’s not so obvious though is that they’re not just selling you their products/services. They’re also selling you on the philosophy behind those products.

The Hidden Messages

For example, any company that’s trying to sell you on $4 (or $7, or $20) stock trades needs to first sell you on the idea that the price per transaction is a relevant piece of information when choosing an investment firm. Hidden message: Smart investors do their own investing. And they make lots of trades. So saving $5/trade will really add up.

Alternatively, when a company tries to get you make a phone call to schedule an appointment with a financial advisor, the goal is clearly to sell you some investment or investment services. Hidden message: This is too complicated to do on your own. You need help choosing investments and creating an investment strategy.

Why it’s so sneaky:

When we read an advertisement, it’s always with a healthy dose of skepticism. We know that when the local supermarket offers “unbeatable values,” their prices aren’t literally unbeatable. That’s just how ads work. We’re used to it.

The problem with financial industry ads is that their hidden messages sometimes sneak in under our “advertising radar.” When a company advertises $7 stock trades, it doesn’t trigger our natural advertising skepticism. After all, they couldn’t get away with advertising $7 trades if they really charged more, could they?

As a result, the hidden messages sneak in unnoticed and unquestioned. Without even realizing it, we’ve internalized two ideas of questionable validity:

  • Smart investors don’t use mutual funds. They pick their own stocks. And…
  • Smart investors make frequent trades, buying and selling stocks very regularly.

Alternatively, when we see commercials from investment firms offering free consultations with their financial advisors, it’s easy to unthinkingly accept their hidden message: Investing is complicated, and you can’t (or at least shouldn’t) try it on your own.

Sorting out the mess…

It’s no surprise that the general public is confused. They’re attempting to reconcile conflicting ideas (perhaps without even realizing that they are conflicting). If person has watched enough TV, they “know” two things as fact:

  • It’s possible to make a fortune by investing on your own, buying and selling stocks all day, and
  • Investing is too complicated to be done without a professional advisor…

So what does this person really know? They know that investing and personal finance are confusing and convoluted.

So what should we do about it? What can a person do to try and sort out this mess of conflicting messages?

First option: We can realize that ads sell more than products. They sell philosophies as well. And we can make a better effort to think critically about what an advertisement is really telling/selling us before accepting it as truth.

Second option: (See title of this post.) <— This one is my preferred solution. 🙂

What about you? What do investment industry ads make you think? Which ones are your “favorites” ?

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Comments

  1. Interesting question!

    I just looked through a few issues of Money magazine to check out the ads.

    It turns out that NONE of the investing ads even seem to have me as a target market. Most of them are clearly aimed at retirement-age people.

    The only ads that target my demographic (recently married, starting a family, in my 20s) are for insurance and credit cards. How depressing!

  2. Heh, depressing indeed.

    But after all, that’s what every single one of us 20-somethings is doing, right? We’re *all* just racking up credit card debt, aren’t we? 😉

    There really are plenty of young people who are responsible with their finances. You’re not alone!

    The reality though is that we’re not of much value to the investment firms. Even if we’re doing everything right, we don’t yet have hundreds of thousands of dollars in a 401k somewhere just waiting to be rolled into an IRA with their firm.

    The upside: It’s easier to ignore the ads when they’re not targetted at you anyway. 🙂

  3. Mike,

    I love it! Great article and you really hit the issue head on. We need to realize that the media and financial companies aren’t necessarily out for our best interests. They’re out to sell us products (newspapers/magazines or some financial product). The TV should not be your investment adviser.

    @Kathy (and Mike’s response):

    This is very true. The financial industry has little focus on young responsible people who need some good advice to get started on the right track. Their target is mostly just the high net worth people, and you’re not usually in that category in your 20’s and 30’s. That’s why I want to start my own financial planning firm that works on an hourly basis. I won’t have to go after high net worth people because won’t be basing my compensation on how much they invest with me. (There are more reasons why I have issues with the assets under management model.)

    I don’t think everyone needs a financial planner, either. Most of it you can do on your own, but it’s also an issue of the best use of your time. If it takes you 10 hours to learn about asset allocation and index investing, would you rather spend that 10 hours to learn it yourself or come to me and pay $100 for an hour to discuss what your portfolio should look like and get some education at the same time. I’ve already done the research, so if you value your time at more than $10/hour it’s probably not a bad idea to use a fee-only, hourly financial planner.

  4. Yeah, the mid-20s crowd, unfortunately isn’t saturated with folks interested in investing. And those that are interested, probably don’t have allot of capitol to utilize, so the profit margin for a trading company is smaller among us young professionals. Luckily, those advertisements aren’t the only items on the menu. Visiting websites, you can get a better idea of what those companies actually offer the mid-20s crowd.

    Caleb
    http://www.mefinanciallyfree.blogspot.com

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