Key takeaways
- Day trading and one-off investment picks may not pan out and could derail your investing progress.
- Permanent life insurance and other investments with “guaranteed returns” aren’t clear-cut winners. Contrary to what some finfluencers may claim, no return is 100 percent guaranteed.
- Over-investing in precious metals could hinder your long-term wealth-building.
- Investing while you’re in debt isn’t always a bad thing.
As you start investing, you’ll likely encounter bad investing advice that could quickly tank your portfolio. So what should you be watching out for?
This is some of the worst investing advice financial planners Jasmine Renae Ball and Rizek Housari have seen online. Here’s what you need to know about these useless pieces of advice and what to do instead.
6 types of investing advice you should consider ignoring
Some versions of these broad points may work for some investors. If your curiosity is piqued, educate yourself or check in with a financial advisor before making a move.
1. Day trading tips for beginners
- Useless advice: You can beat the market if you’re smart about it.
- Better advice: Even seasoned financial experts rarely beat the market consistently, so passive investing can be a better choice.
“Obviously individual stocks can help generate wealth, but they are extremely risky,” says Ball, a certified financial planner and founder of Bamboo Financial Partners in Tulsa, Oklahoma.
“People get swept up in a Reddit craze,” Ball says. “‘Oh my goodness. I gotta buy.’ They never heard of GameStop before, and all of a sudden they want to buy it.”
Similarly, Housari calls day trading advice on social media a “really dark corner of the Internet.”
Housari said he doesn’t day trade for himself or his clients for a few reasons.
“One is that data suggests that it’s incredibly difficult to [beat the market] again and again,” says Housari, a CFP and CPA who is a financial advisor with NFP in Salt Lake City.
Historical data on passive versus active investing returns show that investing works better than trading for most people, despite efforts day traders put into carefully watching candlestick charts and other stock market indicators, he said.
Other reasons Housari lists for not day trading are short-term capital gains taxes, which are higher than the taxes incurred on long-term gains. Plus, it’s difficult to know when to buy and when to sell.
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2. The next great cryptocurrency pick
- Useless advice: Buy this crypto to get rich quick!
- Better advice: If you want to invest in a particular asset like cryptocurrency, keep it to a very small percentage of your overall portfolio.
Attempting to find the next big token — while coins are being rapidly issued without little oversight, as Housari points out — is extremely difficult. It can be especially risky for working-class people.
“People who are lower income and who are in the lower end of the socioeconomic status have more of their wealth, albeit very small, but more of their savings in crypto as a percentage of their asset allocation than people who are middle class or in a higher-net-worth category, which to me is so unnerving,” Housari says.
If you’re looking to invest in this emerging technology, crypto exchange-traded funds (ETFs) — mainly blockchain, Bitcoin and Ethereum — can be a good place to start, Ball says. Even if it’s a single currency like Bitcoin or Ethereum, Housari recommends limiting your crypto holdings to 5 percent of your investment portfolio.
3. ‘Be your own bank’ with life insurance
- Useless advice: The secret to durable wealth is permanent life insurance.
- Better advice: Term life insurance is the best option for most people; the money saved on premiums could alternatively be invested directly in the market.
Ball noted there are ample social media posts about permanent life insurance’s benefits. One is that policyholders can take a loan against their policy’s net cash surrender value (read: not the death benefit amount).
“They hear on the little TikTok clip, ‘Be your own bank. Don’t deal with lenders that are going to check your credit,’” Ball says. “… But in reality, that’s not how it works out.”
Permanent life insurance, like indexed universal life insurance and whole life insurance policies, can be useful in particular circumstances, says Housari. However, insurance companies can profit much more from whole life, universal life, index universal life and variable-type products. He noted that that can’t be said for term life insurance.
That’s because permanent life insurance charges much higher premiums than term life insurance. If you’re just getting started building wealth and don’t have a lot of spare cash, you may risk missing out on market gains that you could’ve seen from the money you spent on premiums. The opportunity cost can, as a result, be quite large. A financial advisor can help you weigh your options.
4. Annual return expectations and living off interest
- Useless advice: The secret to investing is living off interest and not touching the principal. Or, this (fill in the blank) investment offers guaranteed double-digit returns.
- Better advice: Manage your ROI expectations and realize that no investment has a 100 percent, guaranteed return.
Housari doesn’t give return-on-investment (ROI) estimates for his clients because the adage is true: Past performance is no guarantee of future returns. Yet some in the personal finance space may try to convince you otherwise.
“When I look at investments, anytime I hear the word ‘guarantee’ my red flag goes up,” said Housari. “… Insurance products may use the word guarantee, [but] the insurance company can go out of business.”
Another common misconception about investment returns is that those earnings can support your lifestyle.
“I’ll still have clients come to me — and some are younger and some are older — but they’ve just heard that, ‘OK, I don’t want to talk to the principal. I just want to live off the interest,” Ball says. “And I’m like, ‘OK, this is how much interest it’s generating.’ ‘Oh, that’s not enough to live off of.’”
Without a sizable position, which is risky, even the Dividend Kings likely won’t pay your bills. Altria Group had one of the highest dividend yields among the kings last summer — and paid $4 in dividends for 2024.
5. Gold and precious metal investing for beginners
- Useless advice: You can avoid investment risk by focusing on precious metals.
- Better advice: Holding only precious metals long-term may mean missing out on gains in other asset classes and could create liquidity issues. Build a diversified portfolio and include precious metals if desired.
Beginners may be easily shaken by market volatility. Consequently, gold, silver and other precious metals might seem like an attractive place to start.
“I think noise is a keyword here and that can push people to go to what they historically have thought of as a conservative asset like precious metals,” Housari says. “The problem arises when you hold onto precious metals for a long period of time.”
While gold and other metals retain their value, they don’t do much more than that, such as compounding gains. The value of gold only rises when the price does.
Ball also encounters investors who have precious metals in personal safes, yet no liquidation strategy. As a compromise, she advises risk-averse clients to invest in vehicles such as gold ETFs that offer exposure to the market without owning physical gold.
“You’re still tied to that thing that you feel more comfortable in, but we’re kind of eliminating some of the liquidity issues that we have where you can’t actually access the money,” Ball adds.
6. Investing when you’re in debt
- Useless advice: Don’t invest until you’re completely out of debt.
- Better advice: Consider your interest rates and other financial priorities before deciding whether to invest when you have debt.
“I hear this one all the time: Debt is always bad and you have to pay it all off before you invest,” Ball says.
Ball notes that she’s seen people forgo retirement account contributions, even when they have a 401(k) employer match available, because they also hold debt. Instead of focusing solely on repaying your debt before investing, Ball advocates for a more measured approach. She says to prioritize paying off high-interest debt without forgoing investing entirely.
“For example, I was sitting down with someone and she had $100,000 in debt, but $90,000 of that was student loans and $10,000 was consumer debt,” says Ball.
Ball acknowledges that having student loans can feel uncomfortable, but not all debt is created equal, she says.
“When I’m looking at it, it’s not as detrimental or as much of an obstacle to your financial future as the consumer debt is,” Ball says.
Consumer debt tends to have much higher interest rates than loans with the current credit card interest rate at 20.09 percent on March 26. Unlike returns on investments, paying off debt has a guaranteed rate of return in that you save money on interest, Housari says.
“If I can save 24 percent on interest, on a risk-adjusted basis, you’re not going to get that anywhere under the sun,” Housari says. “So let’s get rid of that credit card debt.”
Bottom line
Not all investing advice for beginners is terrible, and a great deal of it can be helpful to a savvy investor. Still, there’s a lot of muck to steer clear of. Finding the right financial advisor can be a crucial step in the right direction. But no matter whether you work toward your financial goals with a pro or on your own, you’ll need to stay vigilant.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
