The consequences of making bad financial decisions are much higher during a recession. It is critical that you find trustworthy information sources to help guide your decision making.
During a recession, you should only listen to financial professionals or people who rely on research and data on important financial issues. It's important to filter out "click-bait" that encourage fear-driven decision making.
This post reviews common financial advice you are likely to hear during a recession that you should ignore and how to identify trustworthy sources of information.
During a recession, the loud voices get louder
Even during the best of times, we must be careful who we take financial advice from and what sources of information we trust.
We live in a world where anyone can broadcast their opinions around the world. What often happens is the people with the loudest voices are the ones that get heard.
Having the loudest voice does not mean someone is saying anything worth listening to.
Taking financial advice from the wrong people can have negative impacts on your life and your family’s life.
During a recession or times of economic uncertainty, people are afraid. When people are worried, they simply want to know, “what should I do?” Like a shark smelling blood in the water, the loud voices often get louder during times of uncertainty.
Let’s review money advice and sources of information you should ignore during a recession.
Anyone who says the world is ending and people who tweet IN ALL CAPS
When economic conditions begin to get scary, you can be sure that there will be plenty of people screaming on the sidelines that the economy and the world as we know it is coming to an end.
Do not listen to these people.
The frustrating part is when these people are well-known or have large followings.
Their ranting is sure to attract a lot of attention, and a lot of clickbait articles will be written about this person’s unfounded claims. It would be one thing if these articles pointed out how ludicrous the doom and gloom claims are, but usually, they leave it up to the reader to decide for themselves.
Take this tweet from Rich Dad, Poor Dad author Robert Kiyosaki after the U.S government announced it’s 2020 stimulus package.
Here is what he said.
DEATH OF DOLLAR. People desperate for money. Very sad. If government gives you free money take it yet spend it wisely. DO NOT SAVE. Buy gold, silver, Bitcoin. Dollar is dying. Silver $20. Best Buy for future security. Everyone can afford $20, especially with free fake money. — Robert Kiyosaki
Sadly this man has sold a lot of books, so when he gives advice, a lot of people will listen, no matter how bad that advice might be.
You can tell this is not a source of information you should trust by the need to make unfounded claims like the “dollar is dead.”
Does he provide any compelling evidence to suggest that this is at all true? Of course not, but why bother making rational arguments WHEN YOU CAN TYPE IN ALL CAPS TO GET YOUR POINT ACROSS.
Statements like this are effective at making people afraid and drawing attention to yourself.
As a general life rule, don’t take advice from anyone who consistently tweets in all caps.
Anything from Instagram
While we are on the subject of social media, we need to talk about Instagram. If you look at the top #investing posts on Instagram, you are very likely to see the following.
Video clips from the movie “The Wolf of Wall Street.”
Infographics about how much income you could generate if you invested $100,000 in individual dividend stocks.
Images of famous rich people and fictional characters with a cheesy generic quote saying something to the effect of “if you hustle hard enough, you will become filthy rich.”
Pictures of city skylines with cheesy captions like “real estate is my hustle.”
Bitcoin spam.
Pictures of people in exotic destinations who can’t wait to tell you their foolproof method to becoming wealthy.
Most of it is pretty looking garbage.
With the rare exception, I have not seen any investment or financial related posts on Instagram that were of any value.
When listening to anyone on social media about any subject, it’s important to remember that followers, likes, and retweets have zero correlation with the quality of the advice being given.
“I told you so,” attention-seeking headlines
When we are in a recession or the stock market is experiencing a period of high volatility, you can expect to see a lot of “I told you so” headlines.
The classic “I told you so” headline is the argument that the 60/40 portfolio is dead.
The 60/40 portfolio they refer to is an investment portfolio of 60% stocks and 40% bonds. For decades the 60/40 allocation has been one of the most common methods to construct an investment portfolio.
I am not here to say that the 60/40 is the best way to construct a portfolio. Personally, my portfolio is weighted much heavier towards stocks.
Constructive debates about the best way to build an investment portfolio are productive conversations to have.
Articles that claim the 60/40 is dead are typically not making good-faith arguments about optimal asset allocation. They are often making the case that you need to replace your bond allocation with some “alternative investment” like a private equity investment or hedge fund.
Every time there is a blip in the market, you hear people proclaiming that 60/40 is dead. For something that has been declared dead so many times, the 60/40 portfolio sure has been kicking ass and averaging an 8.6% annual return over the past 94 years.
A broken clock is right twice a day. Just because the last 99 times the 60/40 was declared dead were wrong does not mean the 100th time won’t be right.
There could come a time where the 60/40 portfolio fails to provide a reliable long term return on investment. That does not mean it had anything to do with the latest person declaring the death of the 60/40.
Never make a snap decision about your investment portfolio or any part of your finances based on the advice of a single article (including this one).
Important financial decisions need to be made using all available information and should reflect your goals and your risk tolerance.
Who you should listen to
This might sound very obvious, but the first group of people you should listen to when it comes to financial advice are financial professionals.
If you work with a financial advisor, a recession is when they earn their money and show their true colors.
Giving good financial advice when the stock market is soaring and everyone has a paycheck coming every two-weeks is not rocket science.
The real value of a financial advisor is not the financial plan they build. It’s their ability to prevent their clients from throwing the plan away when sh*t hits the fan.
If you’re getting generic advice or worse, can’t get your advisor on the phone during an economic downturn, it might be time to start looking for a new advisor.
A great financial advisor will be there to “talk you off the ledge” when you get scared and want to bail on the financial plan.
If you don’t work with an advisor
The majority of people do not work with a financial advisor. What sources of information should they rely on during a recession?
For as much crap and clickbait that exists on the internet, there are also a lot of smart, thoughtful people talking about money.
To find a personal finance blog worth reading, the first thing I look at is the quality of the information they site in their work. This is especially important when discussing a technical topic like investing or the economy.
If a writer consistently sites academic papers or respected industry research like Vanguard, they might be someone worth listening to.
If they don’t cite any source of information or can only link to another blog post on the same topic, they are not someone worth listening to.
Let me give you an example.
When I talk about why index investing is the most rational way to invest in the stock market, I link back to Nobel prize-winning economist Eugene Fama’s research on the efficient market hypothesis.
The way I look at it is simple. I am genuinely interested in reading these research papers. They are written by people much smarter than I am and are the most reliable source of information available. Not relying on this research to make my arguments would simply be lazy.
When I wrote about what happens after a stock market crash, I didn’t give my “opinion.” I presented the results from a research paper from the National Bureau of Economic Research that studied 1,000 “stock market crashes” around the world since 1692 and what happened in the months and years following the crash.
It’s the most comprehensive research on “what happens after a stock market crash” that I could find. By reporting the results, I can confidently tell my, readers, what usually happens after a stock market crash.
If an author is going to talk about investing and the only source of information they link to is another blog post on the same subject, that is a major red flag.
When it comes to financial advice on the internet, I have two suggestions.
Don’t trust authors who rely heavily on their “gut” and don’t have reliable sources of information to back up their argument.
Any ideas or concepts you learn about on the internet should be the beginning, not the end of your research. You should never make a significant financial decision based solely on the advice of a single source.
Filtering out the noise
The internet and social media have made it easier than ever for anyone to broadcast their opinions.
It’s important to remember that just because someone is a celebrity, has sold a lot of books or has millions of followers, that does not mean they are a credible source of financial advice.
Remember these simple tips to filter out the noise.
Never take financial advice from someone who writes IN ALL CAPS. Smart people don’t need to shout to get their point across.
You are unlikely to find good financial advice on Instagram or any other form of content that takes five seconds to consume.
During a recession, you are going to see a lot of people making unfounded claims like “the 60/40 is dead.”
If you have a financial advisor, they are the person you should be listening to during an economic downturn.
If you don’t have a financial advisor, look for thoughtful people who site the most credible sources of information possible.
Never make a financial change based on what you read on the internet. If you read about an interesting idea, don’t take the author's word for it. Do further research on that topic before making a final decision.
There is lots of lousy money advice out there, and a lot of it is coming from well-known individuals. I hope you use the tips provided in this article to filter out the bad advice and focus on more reliable sources of information.
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This article is for informational and entertainment purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.