TIL my neighbor's "expert" investing advice was just a sales pitch in disguise

Ran into my neighbor Dave last Saturday while we were both out messing with our gutters. He's always bragging about his stock picks, so I asked him how he got started. Dude told me he pays a guy 1.5% of his portfolio every year for "managed access to exclusive funds." I asked him what the returns were over the last 5 years and he said around 4% average. I pulled up a simple S&P index fund on my phone right there and showed him it did 12% over the same stretch with zero work. He went quiet for a minute then admitted his "advisor" is a friend of his brother in law. That conversation made me realize how many people mistake a slick sales pitch for actual financial wisdom. Has anyone else had a neighbor or friend try to sell you on a money manager that was just padding their own pockets?

2 comments

2 Comments

wesleybutler2d ago

Man, that's brutal. Poor Dave is paying somebody 1.5% to underperform the market by a mile. It's wild how common that story is. I've got a buddy who signed up with a financial advisor through his church small group and the guy put him in a bunch of loaded mutual funds with high expense ratios. When he finally asked why he wasn't just doing an index fund, the advisor got defensive and talked about "active management during downturns." Which is funny because his portfolio still dropped 30% in 2022. It's like people trust a friendly face more than actual math.

mark6112d ago

Read something recently that said most actively managed funds don't beat their benchmark over a 10 year period. Something like 85% of them fail. So that advisor is basically selling hope and a handshake. Your buddy's story is exactly why I tell people to be careful with advisors who come recommended through social circles. They might be nice folks but nice doesn't beat the S&P. The math just doesn't care how friendly someone seems at church.