Getting Your Financial Advice Online? Proceed With Extreme Caution

Steve Pomeranz: Once upon a time there were a few well-regarded online sources for reliable financial information and advice. But in recent years with the explosion of the internet, we now have nearly unlimited information at our fingertips. Now it is possible to find good financial information, but it takes a little knowledge and it takes a little skill, and we are going to give you some of those today.

My guest is Eric Tyson, the author of Personal Finance in Your 20s and 30s for Dummies, and he writes regularly about these issues. Hey, Eric, welcome to the show.

Eric Tyson: Thanks, Steve.

Steve Pomeranz: In the early years of the computer, I was totally absorbed. And we would go to the bookstore, my wife and I, and I would be in the computer section and it would be Computer for Dummies and then next time I would go I’d be looking and buying Computer for Idiots.

And I was in there one time and my wife said, “what are you’re looking for now? Computer for morons?”

Eric Tyson: [LAUGH]

Steve Pomeranz: So, we’re not in a moron territory, but we are definitely in the dummies territory. So, in seconds flat these days, we can look up anything we want to know about money management, and that’s good news and bad news, right?

Eric Tyson: Well, exactly, and I think this younger generation, to whom this book of mine is particularly targeted, I think are especially prone to that because they’ve grown up with cell phones in their hands and access to computers all around them and they’re used to the typing things into a Google search expecting that they can get an answer to something in less than a minute.

Steve Pomeranz: So, there’s information though that you should ignore and even run away from and then there’s information that actually is of quality, but how does a person who’s not steeped in the knowledge of investing or finances tell the difference?

Eric Tyson: Well, yeah, and that is a key question and part of the answer to that question is to get educated yourself because I’ve long argued you can’t possibly evaluate the quality of information and the competence of a person that you’re seeking advice from, if you yourself are completely ignorant on the topic.

So, a person doesn’t have to become a full expert but you need to learn enough so that you can evaluate the quality of the information that’s out there. And that’s where books like mine and programs like yours can help individual investors.

Steve Pomeranz: Yeah, that’s what I was going to say. So the book is Personal Finance in Your 20s and 30s for Dummies and I’m talking with Eric Tyson, the author. Let’s get to some of the things to be aware of. We are going to teach today, and we are going to help our listeners be able to discern, to some degree, the difference between the bad and the good.
The first point that you have for us is, consider the hidden cost of a free website, take us there.

Eric Tyson: Well, exactly, I mean we don’t have to look any further than the recent scandal and problems with Facebook to understand this problem. People should, they should be suspicious anytime they go to a website and there’s lots of seemingly free information. Well, that should raise a question in your mind, well, how are the purveyors of this website actually making money? And therein lies a whole host of potential problems for you, the web surfer.

Steve Pomeranz: So you’ve got to kind of figure it out. Is it advertising? What are some of the other ways that these free websites quote unquote make their money?

Eric Tyson: Well, the so-called referral or affiliate fees are a big problem on these free websites. And, for example, you might be wanting to get advice on…suppose you’ve heard about credit cards, all these reward cards. You want to get free travel on airlines and free stays in hotels and so you may go to some websites that have articles on the topic.  And then you click on a link and before you know it you’re taken to an application form for a particular credit card. Well, that right there is a potential red flag because a lot of these websites that have such articles are getting affiliate fees, typically in the neighborhood of 100 bucks a pop, every time somebody clicks on a link and actually fills out one of those credit card applications.

Steve Pomeranz: You know, years ago, I owned a website, medicarebenefits.com, and the model was to have very good quality articles, objective articles, everything we do here is objective. And then when they click through, they click through to one of the internet e-insurance or something like that where they then could have a choice of their health care plans, and that was how were we had structured it to make money.

Eric Tyson: Sure.

Steve Pomeranz: So, would you consider that a negative way to go about it, or is it just a question of you as a consumer knowing what you’re doing?

Eric Tyson: Yeah, I mean it’s not inherently problematic and, ultimately it comes down to…and in the example I gave was with the credit card links.

So it’s not necessarily bad. I mean, it could end up taking you to a good card that does actually meet your needs. But I guess what I have a problem with is that consumers are largely ignorant to this going on, and the disclosure for my case on too many websites is really inadequate.

I think the disclosure arrangement should be made clear on a lot of website.

Steve Pomeranz: Yeah, and plus a lot of websites will create content that kind of gets your adrenaline going or gets you agitated in some way,  looking for a short-term solution. And that’s one of the things that you mention in the book is that, be wary of the short-term focus and addictive nature encouraged by many websites.

Eric Tyson: That’s exactly right, and you also hit the nail on the head with talking about so-called provocative content where they’re going to unnecessarily raise your anxieties and concerns in the field of personal finance and investing, it’s easy to do that. You can start talking about how the stock market, may be on the verge of a huge crash.

Steve Pomeranz: Always. Yeah.

Eric Tyson: And a certain website may claim that, not only have we predicted things like this happening in the past, but we perfectly positioned our investors in exactly the right vehicles. When you start to hear that kind of terminology, or claims of ridiculous return numbers, those should be major red flags.  But yeah, also be careful about any website that is providing constantly updated content that is addictive and that gets you coming back and feeling like you need to check on things constantly. Sound personal financial management, sound investment management—and I know you agree with this—should not be done that way. You should be able to set up a good portfolio, a good financial plan and not have to be checking on it every minute of every day.

Steve Pomeranz: Well, buying investments or making investments, let’s say in stocks or in companies, is really an investment in companies. If you bought a dry cleaner down the street, you wouldn’t be trying to figure out what the value of that dry cleaner is every two minutes.

Eric Tyson: Exactly.

Steve Pomeranz: You would look at earnings, and you would try to forecast the future of that and hold on to it if it’s doing well, not what the stock price is doing at any moment. Earlier, we broached the point that a lot of consumers don’t really have the knowledge to be able to discern between good advice and bad advice. And that’s why a lot of these sites that have message boards, where everybody has an opinion. I always look at those and I go, I mean, maybe what you are saying sounds somewhat reasonable, but who the heck are you? What’s your base, how do I know that you’re valid?

Eric Tyson: Well, exactly, and people come up with these cutesy-sounding screen names that alter their identity, and a lot of times the people who are posting, they either don’t know what they’re talking about or even worse, they may be extremely biased or have enormous conflicts of interest which they’re not disclosing. Maybe you’ve heard about these cryptocurrencies like Bitcoin, and you go onto some message board to learn about a particular currency. And it turns out that a lot of the people that are posting on the board are people who actually work for that particular cryptocurrency company. So, those things are not obvious or disclosed and you really have to…it’s like would you go down the street and just strike up a conversation to ask advice on investments? Well, that’s basically what you’re doing on a message board. And again, I’m not saying that you can’t find out something potentially useful, but more often than not ,the information, opinions that are posted on there, are not worth anything.

Steve Pomeranz: I mean there are some sites—there’s a site by the name of Seeking Alpha, which has gotten a lot better over the years.

People are required to say whether they have positions in the stock. They tell if they’re financial professionals and the like. And you still have to be very wary because an opinion is just an opinion. You’ve actually just got to go in there and do the homework and figure out or find an advisor or manager that knows how to do that for you and team up with that person.

But in some way, you’ve got to get inside the knowledge circle and get a level of competence in that area.

Hey, Eric, unfortunately, we are out of time. My guest is Erik Tyson. Erik is a best-selling personal finance author, counselor, and writer. He’s the author of five national best-selling financial books: Investing For Dummies, Personal Finance For Dummies, and Home Buying Kit For Dummies. So, I guess Eric is the king of the dummies. [LAUGH]

Eric Tyson: [LAUGH]

Steve Pomeranz: So, I hate to leave it that way, but Eric, thank you so, so much for taking your time, and if you have a question that we just discussed, you know, ask us.

Go to Stevepomeranz.com, ask anything you’d like, that’s Stevepomeranz.com. And while you’re there, sign up for our weekly update and we’ll send you the weekly commentaries and interview straight to your inbox.

Eric, thanks for joining us.

Eric Tyson: Thank you, Steve, my pleasure.