The Best and Worst Sources of Financial Advice

Check out these 8 great financial books, and avoid these 5 sources of advice.

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As the New Year starts, you may be considering a change in your investing strategy. There are so many purveyors of financial advice that it can be confusing to separate fact from fiction. Here are my choices for sources of good advice, based on solid data. Unfortunately, these sources are often overwhelmed by the far more abundant bad and downright ugly advice, so I will designate those as well.

[See The 10 Best Places to Retire in 2012.]

Good Financial Advice

1. John Bogle. I like all of his books, but my favorite is The Little Book of Common Sense Investing.

2. Burton Malkiel. A Random Walk Down Wall Street is still an investment classic, although it can take some discipline to get through it.

3. Larry Swedroe. A prolific author of thoughtful books, my favorite is one of his early ones: What Wall Street Doesn’t Want You to Know.

4. Mark Hebner. The president of Index Funds Advisors (with whom I am affiliated) just released a condensed, updated, and revised version of Index Funds: The 12-Step Recovery Program for Active Investors that will be available on January 31, 2012. The foreword by 1990 Nobel Prize recipient Harry Markowitz alone is worth the price of the book. If the research in this book doesn’t persuade you to fundamentally change the way you invest, you are suffering from cognitive dissonance.

5. William Bernstein. Perhaps the deepest financial thinker of our time, all of his books are superb. Everyone should read The Intelligent Asset Allocator and The Four Pillars of Investing.

6. Taylor Larimore, Mel Lindauer, Richard Ferri, and Laura Dogu. The Bogleheads Guide to Retirement Planning tells you everything you need to know about planning for retirement.

7. I wrote the Smartest series of books to empower all investors to avoid becoming victims of the securities industry and to demystify the process. I don’t hide information and my books are not written to generate advisory business. I tell you exactly which index funds you can purchase on your own, directly from major fund families like Vanguard and Fidelity. Start with The Smartest Investment Book You’ll Ever Read and move on to the others.

8. Allan Roth. How a Second Grader Beats Wall Street makes it simple to understand how to invest intelligently.

[See top-rated funds by category ranked by U.S. News Mutual Fund Score.]

Bad Financial Advice

There is so much bad financial advice that I can only use categories. Here are some of the worst offenders:

1. Retail brokers. They can’t pick stocks, time the markets, or pick hot fund managers, yet they spend their days dispensing advice in each of these areas. Your chances of having a prosperous New Year are greatly enhanced if you cancel your retail brokerage account.

2. Discount brokers. It’s fine to use them for the limited purpose of buying low cost exchange-traded funds. If you are relying on the data they provide to assist you with research and analysis or their trading programs they are a source of really bad advice. It is unlikely your trades will be profitable, net of your transaction costs.

3. The financial media. Much of the financial media gives a forum to pundits who make predictions concerning the direction of the markets or particular stocks, bonds, or mutual funds. None of this information is helpful to investors. A chimpanzee throwing a dart is likely to be as accurate as these “experts".

[See 12 Retirement Resolutions for 2012.]

The Ugly

The advice given by those in this category is no worse than typical bad financial advice. What makes their advice ugly is that they have been given a forum to widely dispense their views, and they abuse that forum by providing information likely to harm you.

1. Jim Cramer. All you need to know about Cramer are the views attributed to David Swensen, the manager of the $34 billion Yale endowment, on ABC: “On Mad Money, Cramer promotes a mindless short-term approach to markets by encouraging frenetic trading of individual stocks. Such a high-cost, tax-inefficient strategy almost guarantees failure.”

2. Jeff Macke. Macke is a host on Yahoo’s Breakout. He uses this forum to discuss his trading strategies. He provides no data supporting these strategies. Recently, he cautioned his readers against pursuing a “buy and hold” strategy. I gave this blog my “worst financial blog of 2011” award. If you want to increase your chances for a prosperous 2012, you would be well advised to focus on good advice and avoid the bad and especially the ugly.

Dan Solin is a senior vice president of Index Funds Advisors. He is the New York Times bestselling author of The Smartest Investment Book You'll Ever Read, The Smartest 401(k) Book You'll Ever Read, The Smartest Retirement Book You'll Ever Read, and The Smartest Portfolio You'll Ever Own. His new book, The Smartest Money Book You'll Ever Read, was published on December 27, 2011.

The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.