Sure, it’s possible to find good money management advice online, but it’s rare. If you plan on searching the Internet for sound financial wisdom, be sure to come armed with a healthy dose of skepticism. Here are seven things to be wary of along the way.
Once upon a time, there were a few well-regarded sources for reliable financial information and advice. But in recent years—thanks to the enormous impact and growth of the Internet—we now have nearly unlimited information at our fingertips. In seconds flat, we can look up anything we want to know about money management. That’s the good news, right? Right. But it’s also the bad news.
The Internet can be an enormous resource for finding financial information, advice, and market predictions. Yet too much information can be overwhelming. It can even be dangerous when you don’t know how to separate the wheat from the chaff.
My advice? Make an effort to discern what’s worth paying attention to—and paying for—and what you should ignore and perhaps even run away from.
Remember the “buyer beware” mentality when looking for financial advice online. The Internet is the Wild West, and there are far more unreliable resources out there than you would think—and you should never rely on bad information when managing your money.
My new book ® explains that while you can look online to find the same time-tested and commonsense principles about sound personal financial management and wise investments, the Internet may still steer you wrong. Be on the lookout for prognosticators claiming to be able to produce fat profits and crooks looking to defraud people of their hard-earned money. Also: lots of dubious “free” advice.
Read on for seven things to remember when navigating the online world of financial advice:
Consider the hidden cost of “free.” Always ask yourself one question when reading a free article online: How can the website purveyor afford to hire competent personal finance experts to write articles for the website? For many sites, the answer is that they hope to make money from advertising. This is a problem because it means the website has to be careful to offer content that is attractive to advertisers. As a result, it may shy away from valid criticisms of various products, services, and firms.
So what you may consider to be “free” content may actually have a hefty cost to you if it offers faulty advice that causes you future headaches and pain.
Watch out for paid reviews. It is increasingly common for companies to pay websites to post flattering reviews of products and services. And a growing number are connecting with bloggers who are looking to earn money by saying flattering things about the companies paying them. Print publications usually include a disclosure when an article is paid advertising, but many websites and blogs fail to do this.
Sadly, the complete lack of disclosure that their content is paid advertorials is all too common online, especially in the financial space. Failing to provide a disclosure is extraordinarily misleading and may lead you to believe that a review is trustworthy when, actually, the opposite is true.
You can often determine if a review is paid or not by looking at other reviews a certain individual or website has done in the past. Do any of them offer any negative criticism? If they are full of only praise, this can be a clue that they aren’t offering a balanced review.
Beware of links to recommended products and service providers. Often, the referring website gets paid an affiliate fee—sometimes amounting to 30, 40, or 50 percent of the product price! How do you avoid this? I recommend looking for sites that have posted policies against receiving referral fees from products and services they recommend.
Be wary of the short-term focus and addictive nature encouraged by many websites. Many financial websites provide real-time stock quotes as a hook to a site that’s full of advertising. Another way sites create an addictive environment is by constantly providing news and rapidly changing content that encourage you to return multiple times daily.
My experience is that the more investors think short-term, the worse they do. And constantly checking stock quotes and obsessively following the news can certainly promote short-term thinking.
Think twice about tips offered around the electronic water cooler (message boards). This doesn’t mean you can’t communicate with strangers and exchange ideas online—generally this is fine. However, if you don’t know their identity and competence level, why would you follow their financial advice?
Message boards are rife with day traders spreading exaggerations and lies in order to boost stock prices by a small amount and profit on a quick sale. Collecting ideas from various sources is okay, but always verify the info with reliable sources. Educate yourself and do your homework before making personal financial decisions.
Keep an eye open for the agenda of expense-tracking sites and apps. There are plenty of sites and apps devoted to helping reduce your spending, such as Geezeo, Mint, Mvelopes, Wesabe, and Yodlee. The problem with using them is that they are loaded with advertising and/or have affiliate relationships with companies. This creates a massive conflict of interest and taints any recommendation made by these sites. They have no incentive or reason to recommend companies that don’t pay them an affiliate fee.
Another problem with these apps is that after registering as a user, the first thing most of these sites want you to do is connect directly to your financial institutions (banks, brokerages, investment companies, and so on). Then they download your investment account and spending data. Yes, you should have security concerns, but those pale in comparison to privacy concerns and concerns about the endless pitching to you of products and services.
Look out for financial service companies trying to make a sale. These companies try to sell you financial planning advice that really doesn’t offer good value. Such companies can’t take the necessary objective and holistic view required to render useful advice.
Above all, use common sense when you turn to the Internet to manage your finances. You can find a certain amount of reliable and helpful content online, but there’s a lot of bad information floating around from companies that don’t have your best interests in mind—and it can often be hard to tell the difference between the two. Check in with a trusted financial advisor to answer your important questions and you’ll avoid the headaches and pain that “free” online advice could cost you in the future.
About the Author:
Eric Tyson, MBA, is an internationally acclaimed and best-selling personal finance author, counselor, and writer. He is the author of ® and five national best-selling financial books including Investing For Dummies, Personal Finance For Dummies, and Home Buying Kit For Dummies. He has appeared on NBC’s Today show, ABC, CNBC, FOX News, PBS, and CNN, and has been interviewed on hundreds of radio shows and print publications.