📈TikTok Financial Advice

Alex and Ian break down some quality "advice" from TikTok

Everyone from Cardi B to Elon Musk believes we’re already in a recession.

We’re not (yet), but that hasn’t stopped people from acting like we’re in a recession. Which brings us to this video my wife stumbled across on TikTok. 

@mecca.dreamsHow to stay recession proof #mindsetshift #recessionproof #moneytalks #financialliteracy #protectyourwealth

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If you’re unable to hear it or watch it, here’s a partial transcript, edited for length:

“Alright folks, by now you’ve probably heard the doom and gloom about the upcoming recession…. [B]elieve it or not, more millionaires are made during recessions than any other time. So, that should already tell you that these three tips I’m about to drop on y’all should be saved, bookmarked, and sent to all your friends and family…Number one thing that I would keep an eye on is your employee based retirement plan. So that’s anything like a 401k, 403b, 457 – anything with a ‘four’ in front of it. These accounts are going to be most susceptible to market loss, so, if I were you, and I was over the age of, like, 35 to 40, I would look into securing a fixed index annuity.

Annuities are incredible – especially during these crazy times – mainly because… if you decide to keep this annuity well into your retirement age, you are going to be able to have a pension-like income come from this one plan.”

She goes on to emphasize the importance of building a community (valid point; it helps to have a network of people you can rely on before you need something) and to consider building a needs-based business, where she cites “finance, healthcare, child services, death and funeral services” (also valid). 

Rather than break everything down point-by-point, we’ll make our own three points that should actually be saved, bookmarked, and sent to all of your friends and family instead of the alarming advice about annuities.

Point #1: Don’t Let Fear Guide Your Decisions

She says to keep an eye on your “employee-based” retirement account because these accounts can be “most susceptible to market loss.” She’s not wrong, but it’s a something of a circular argument: most people in the target demographic – “over age 35 to 40” – will have their retirement money in stocks (as they should); the stock market tends to sell off during a recession, and therefore, she appears correct when stocks eventually fall in response to the recession.

We know it's emotionally difficult to watch your money go down every day, particularly when you don’t know where the bottom will be. 

Positioning an annuity as a way to lock in gains is a smart way to boose interest in annuities on her part (the implicit goal of the video, it seems), but highly unsuitable for pretty much every one of the people watching this video. 

In short, she’s selling fear to people who have no reason to be fearful.

Point #2: There’s No Free Lunch

Annuities offer guaranteed income – that’s true. But guarantees cost money. The average fee for an annuity can be upwards of 2% per year for a fixed annuity, and even more in a variable annuity, which come out of your principal. 

By comparison, a diversified ETF portfolio can be had for 0.15% per year. 

Aside from the fees, the returns on a fixed annuity tend to underperform a diversified portfolio. For example, here are the rates for fixed annuities at different lock-up periods: 

“The best MYGA rate is 4.30% for a 10-year surrender period, 4.50% for a seven-year surrender period, 4.20% for a five-year surrender period, 3.90% for a three-year surrender period and 3.50% for a two-year surrender period.”

The growth rate for a diversified portfolio is double that of an annuity, gaining between 6 - 8% each year.

It just feels riskier to invest in the market. 

As we discussed in an earlier post, you want to keep your portfolio simple, tax-efficient, and cheap early in your career as you accumulate wealth. You can literally buy one fund and call it good.

Point #3: Vet Your Sources

First, let’s acknowledge that it’s a real challenge to make an engaging video on complex financial topics in 60-second intervals, as anyone who has visited our derelict Instagram page can attest. So, kudos to her for making what appear to be very popular videos that seem to generate a lot of engagement.

Our criticism is that she’s using her social media pages to offer opinions AND hold herself out as a service provider by soliciting “Personal Finance and Generational Wealth Planning” consultations.

We wouldn’t have a problem with this IF there was some way to know who she’s affiliated with. We’re in the industry and we can’t tell. That’s not necessarily illegal for someone who isn’t securities licensed, but it’s not very transparent either. 

So, if you encounter someone offering financial advice or opinions AND they’re holding themselves out as someone you could pay for services, then we strongly advise checking their credentials before taking any additional steps. 

Use these links to check credentials:

For Financial Advisors

For Brokers

If nothing comes up in either spot, they may only be insurance licensed. In that case, you can look up their license based on the state they’re located in.

What’s the Upside?

Making prudent decisions with your money is hard enough without the pressure of choppy stock markets and uncertain economic conditions mingling with questionable advice. 

We’ll give you our information to look up if you’re interested. Email us at weekly.upside@gmail.com and we’ll provide our credentials.

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For Your Weekend

Watch:

Stranger Things - Season 4, Part 2

Part 1 left us on a cliffhanger, along with the Season 4 Big Bad Guy reveal. Part 2 is expected to pick right up where Part 1 left off. Show creators the Duffer Brothers have teased that Part 2 will be akin to two feature length films. Strap in for another trip to the Upside Down!

Read:

Kai Lenny Surfs the Unsurfable by William Finegan (The New Yorker)

Whipped into position by a Jet Ski, [Kai Lenny] would drop the towrope on a rapidly steepening wave with a fifty-foot face and start carving quick little rhythmic turns, then launch a three-hundred-and-sixty-­degree aerial rotation, as if he were enjoying himself. Possibly he was enjoying himself, but if so that was unnatural. Those waves were packed with speeding-truck-crash quantities of violence, and Lenny was going faster, turning harder and more stylishly, than anyone before him.

Chuckle: