How Can I Protect Myself From Bad Financial Advice On The Internet
There is a lot of bad advice on the Internet. Following this advice blindly could lead to financial loss and unnecessary worries. There are tips and tricks you can use to protect yourself from bad financial advice on the internet.
More and more Indians are becoming interested in bettering their financial life these days. The newer generation is entering the working environment and more financial apps are being launched every year to push them to start saving and investing smartly. However, the problem is that most Indians lack financial literacy.
According to a 2022 RBI survey titled “Financial Literacy and Inclusion Survey found that there is a lack of financial literacy in both rural and urban populations. Also, a survey by Muvin and Momspresso found that an overwhelming majority of Indian parents, 96%, felt that their children do not have enough knowledge about money management tools and need a trusted source for financial education.
One of the reasons why Indians lack financial literacy is that we are not taught about personal finance or money management in schools or colleges. Since financial advisors are expensive and inaccessible to many, we turn to the internet to learn about finance. The pandemic also gave Indians a lot of free time to people to scroll through social media and get advice from the internet. However, most times, this advice is given by influencers, who don’t have the proper qualifications, and if you follow them blindly, you may end up regretting later.
In this article, we will talk about bad financial advice on the internet and how you can protect yourself from them.
1. Invest In The Riskiest Instruments
It is a general statement in the world of investments that when you take high risks, you earn high rewards and vice versa. For example, when you buy a small-cap stock, you are taking high risks but your stock has the potential to earn high returns. However, this doesn’t mean you should go ahead and invest in instruments, that carry very high risks like cryptocurrencies.
Unlike stocks and mutual funds, cryptocurrencies are not regulated by any institution. Some people use this quote and invest in some brand new cryptocurrency that is worth $0.000001. Just because something is riskier does not mean it will get you higher returns. In reality, many of these investments’ values reach zero and fail in the long term.
2. You Cannot Be Financially Successful In Your 9-5 Job
This is one of the cringiest pieces of advice that is floating around Instagram and TikTok. Many people demean 9 to 5 jobs, saying that you can only be financially successful if you are your boss. Thousands of videos on the internet ask people to quit their day jobs and become an entrepreneur. Here’s a truth bomb – becoming an entrepreneur is not as glamorous as these influencers make it to be.
You can achieve financial success without a 9 to 5 job, but a majority of people need a regular salary to live a comfortable life. When you get a regular salary, you can build an emergency fund, which can help you during uncertain times. Also, if your company deducts the pension amount and matches that amount as well, it is a great opportunity that is not available in entrepreneurship.
3. Invest Your Emergency Fund
We have written so many articles about the importance of emergency funds. It is recommended that your emergency fund covers at least 6 to 12 months of your expenses. The important thing you should know about an emergency fund is that it should be used for emergencies, so it should be in a place where you can access it easily during times of crisis.
Investing the money in your emergency fund is a really bad idea because you might not be able to access the money easily and it may even attract taxes. Even if you withdraw your funds from investment instruments, the funds may take time to reach your bank account. Hence, it is a good idea to keep your emergency fund in a high-interest savings account.
4. Try To Time The Market
Everyone tries to predict the market. The truth is, no individual has been successful in predicting the movement of the stock market correctly for a prolonged period. It is better to invest your money in companies, whose fundamentals are strong, as well as, other investment instruments, such as mutual funds, digital gold, fixed deposits, and so on. Staying invested through up and down cycles and staying invested for the long term is a better strategy than timing or predicting the market.
5. Don’t Miss This Trend
There are many pieces of advice on the internet about how you should invest in a certain product immediately to earn 10x returns. Most people who follow this advice end up investing during the height of a bubble and are usually left with a huge loss when the market goes through a correction. This will make people panic and sell their investments immediately and realize the loss. Sometimes, people will hold on to their investment and hope that it will bounce back. Following trends blindly is a dangerous investment strategy, so do your research and make informed investment decisions.
6. Your Credit Score Does Not Matter
This is really bad advice because a low credit score can hold you back from several things such as getting loans at lower interest rates, more lender choices, etc. Having positive credit helps lenders to recognize your creditworthiness. Your credit score affects whether you will get approved for credit cards, home loans, and other types of loans. A high credit score, which is a score above 750, will help you get the best terms and interest rates for a loan once you are approved. So, don’t ignore your credit score; check your score today and if it is low, try to improve it for a comfortable financial future.
7. Look For Short Sale Opportunities
Short selling is the selling of a stock that the seller doesn’t own. For example, when you short-sell a stock, your broker will lend the stock to you. The stock will come from the brokerage’s inventory, from another one of the firm’s customers, or from another brokerage firm. The shares are sold and the proceeds are credited to your account. Sooner or later you must “close” the short by buying back the same number of shares (called “covering”) and returning them to your broker. If the price declines, you can buy back the stock at a lower price and make a profit on the difference. If the price of the stock increases, you have to buy it back at a higher price and you lose money.
Now that your crash course on short selling is done, it is important to know that it should only be done by experienced traders. One example is the short squeeze of GameStop. Investors following the Reddit page WallStreetBets lost billions in just a few days, as speculative trading GameStop stock touched highs of $483 and a low of $112.25 per share in one day. So, don’t fall for advice that says short-selling stocks will make you rich.
8. Buy A House
It is a dream for many to buy their own house and many think buying a house is a good investment. The house you buy today for ₹50 lakhs may be worth ₹1 crore over the next 30 years. But this doesn’t mean you have doubled your investment. You have brokerage fees, the cost of the loan, insurance, property taxes, yearly maintenance, etc.
When you include all of those costs, your return ends up being relatively low. On the other hand, if you rent a house, it becomes your landlord’s responsibility when something goes wrong with the rental. Also, depending on where you live, you may have access to amenities such as a gym, pool, or parking space.
In The End…
Anytime you hear any influencer giving financial advice, do your research and think twice before acting on them. Most times, the people who give financial advice on the Internet do not even have the necessary qualifications to provide advice to anyone. Try reading blogs or books related to personal finance, investments, and money management. If you need financial guidance, consult a financial advisor, who has the right qualifications.
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