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Do-it-yourself is fine when the stakes are low; everything you need to know about patching drywall is on TikTok. But what about when the stakes are high? Would you rewire your home after watching a few TikTok videos? Probably not, and the same logic goes for financial advice.
Pouring your savings into an investment — or any product — being hawked on social media is generally a bad idea. But how will you know which bits of advice are legitimate, and which are bunk? Below, experts weigh in on the worst investment advice they’ve seen recently on TikTok and other social media.
1. The FIRE movement is for everyone
FIRE stands for “financial independence, retire early,” and given how the movement has spread on social media, the acronym is apt. Chris Woods, a certified financial planner and founder of LifePoint Financial Group in Alexandria, Virginia, says that many of the core tenets of the FIRE movement are great: They focus on lowering your expenses, saving heavily, putting money into diversified index funds and generating multiple streams of income to help you retire early, which may all be sound financial decisions.
The problem is, everyone’s financial situation is different. Financial planners spend a lot of time upfront learning as much as they can about someone’s unique financial standing before making any recommendations. And for some, he says, the FIRE movement may be an appropriate goal. But it’s not for everyone, and sound bites from social media influencers can’t take your personal situation into consideration.
“So many people will do what these influencers are saying, even if it’s not the appropriate thing for them,” Woods says. “That’s one of my big overarching disappointments or gripes with the influencers out there. Because a lot of times, they’re talking about this stuff without context.”
The next time you see someone living their best #vanlife and boasting how they retired at 30, remember you’re seeing a highlight reel, Woods says. Their financial situation may have been completely different from yours, and there’s no guarantee what worked for them is right for you.
2. Forget about 401(k)s and IRAs
There’s a thought out there that boring, long-established wealth-building strategies, such as funding retirement accounts like 401(k)s and IRAs, are outdated.
“This is all so faulty and so bad I don’t know where to start,” says Tiffany Kent, a CFP and portfolio manager at Wealth Engagement LLC in Atlanta.
Kent says that to stand out on social media, someone can’t just talk about typical retirement accounts over and over again, no matter how proven they are. Boring doesn’t inspire viewers to smash that “like” button.
Instead, they talk up new, complicated — and at times confusing — products, simply to stand out from the crowd. Sometimes the ideas are a bit contrarian, other times they’re outright outlandish. But this approach, Kent says, is absolutely the wrong way to get financial advice.
“If it’s boring, it’s good,” Kent says.
3. Precious metals are the best long-term play
Gene McManus, a CFP, certified public accountant and managing partner at AP Wealth Management in Augusta, Georgia, said by email that he’s seen claims that precious metals IRAs (which invest in gold and silver instead of stocks and bonds) are a better choice than typical IRAs.
He said acolytes of the strategy argue that precious metals IRAs better protect your money from things like inflation, global supply shortages or a collapse of the financial markets.
But McManus disagrees.
“The long-term history and performance of gold and silver do not indicate that they are a rewarding asset class,” he said. “There are short-term periods that they might outperform the S&P 500, but over the long term, they don’t make sense to own, especially exclusively or overweight in a portfolio.”
4. Hundreds of thousands of people can’t be wrong
It’s true that there’s power in numbers. However, it’s equally fair to say that mob mentality, echo chambers and hype can get in the way of rational decision making. Anthony Trias, a CFP and principal at Stonebridge Financial Group in San Rafael, California, says he’s worked with clients who are investing in stocks they’ve heard mentioned on social media — no matter how staggering the claims of future potential — because of how many people were talking them up.
“There are going to be 300,000 people on social media saying one thing,” Trias says. “But prudent investors block out the noise, do their due diligence and look at who they’re actually listening to.”
Trias also echoes Woods’ concerns. Validating investment ideas based on social media hype is problematic, he says, because investment decisions should be highly tailored to you and your needs — and that’s just not possible on social media.
5. Your cryptocurrency will absolutely go to the moon
All the rocket emoji in the world couldn’t give a valueless cryptocurrency long-term staying power, no matter who’s pumping it.
Clayton Moore, founder and CEO at crypto-payment system NetCents Technology, said by email that while engaging platforms like TikTok have been instrumental in spreading the word about cryptocurrencies, they’ve also become breeding grounds for fraud.
“You’ve got to watch out for the crypto influencer who’s just in it for a quick buck,” he said. “The classic pump and dump.”
Moore said it’s common for crypto influencers to accept payment in exchange for making wild claims about a coin, only to abandon their support for it once the check clears.
“If it is too good to be true, 99% of the time, it is,” Moore said.
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7 red flags that jeopardize your credit
Late or missed payments
This one cuts to the heart of what lenders really want to know: “Are you going to pay your bills?” says Francis Creighton, president and CEO of the Credit Data Industry Association, the member organization for credit bureaus.
Anything other than timely, minimum payments are seen by creditors and lenders as missed payments.
“What matters is that you’re making the payment by the due date,” says Rod Griffin, senior director of consumer education for Experian, one of the three major credit bureaus. “If you only make a partial payment—as related to minimum payment due—that’s a bad sign. A partial payment is a late payment.”
When it comes to your credit score, making timely payments is the most important factor. It counts for 35% of your credit score.
Foreclosures and bankruptcies
These are the two worst items you can have on your credit history — and both will give future lenders pause, says Griffin.
But seeing these items on your history “doesn’t mean they won’t make that loan,” says Creighton. “But they may price it differently.”
Foreclosures stay on your credit report for seven years. Chapter 7 bankruptcies — total liquidation — remain on your credit report for 10. Chapter 13 bankruptcies — where consumers reorganize to repay some or all of their debts—stay in your credit history for seven years.
The further in the past that a foreclosure or bankruptcy occurred — and the more the consumer has recovered financially — the less impact it will have on their credit, says Griffin.
Someone else’s debt
When you co-sign a credit card or a loan, the entire debt goes on your credit report. So, as far as lenders are concerned, you’re carrying that debt yourself, and it will be included in your debt load when you apply for a mortgage, credit card or any other form of credit, says John Ulzheimer, a former credit industry executive and president of The Ulzheimer Group.
If the person you co-signed for stops paying, misses payments or pays late, that likely will be reflected on your credit report.
Co-signing means agreeing to repay the obligation if the borrower defaults and allowing that debt, and any late or nonpayments, to count against you the next time you apply for a loan.
A history of minimum payments
Lenders don’t like to see only minimum payments on your credit report.
“It suggests you may be under financial stress,” says Nessa Feddis, senior vice president of the American Bankers Association. “You may be at higher risk of defaulting.”
Occasionally paying the minimum doesn’t signal a problem. For instance, paying minimums in January, after holiday spending, is understandable. But consistently paying minimums month after month indicates you might be having trouble paying off the balance.
Cash advances on a credit card
“Cash advances, in many cases, indicate desperation,” Ulzheimer says. “You’re generally borrowing from Peter to pay Paul.”
The cash advance is immediately added to your debt balance, which lowers your available credit and your credit score for all potential lenders to see.
Secondly, larger card issuers regularly re-evaluate their customers’ behavior by pulling credit reports, FICO scores and customer account histories and running those through their own credit-scoring systems, Ulzheimer says. Many of the scoring models penalize for cash advances because they are considered risky, he says.
If the card issuer reduces your credit limit or cancels your account, that can damage your credit score — and make other lenders wary.
A flurry of loan applications
This one won’t so much scare lenders as cause them to take a second look at what’s going on in your financial life, says Griffin.
For someone who’s making minimum payments or late payments, and transferring balances, a burst of applications can be a sign of financial stress.
Hard inquiries for new credit stay on your credit report for two years and affect your credit score for a year. In the FICO scoring model, new credit counts for 10% of the score.
“They are the least important factor in credit scores, and the last thing that creditors are going to look at,” says Griffin.
Some types of credit applications — for mortgages, car loans or student loans — are grouped together and counted as one inquiry by credit scoring formulas. When it comes to those large purchases, lenders know you’ll want to shop around — and that’s smart.
While newer scoring formulas group similar loan inquiries together if they’re made within 45 days, older versions have only a 14-day window.
But you have no way of knowing which version potential lenders are using. To be safe, keep all inquiries within 14 days.
High balances and maxed-out cards
“A high balance, as compared to the credit limit on your cards, is the second most important factor on your credit score,” says Griffin.
How much of your credit you’re using makes up about 30% of your score.
“Ideally, you would pay off your card in full every month and keep your utilization as low as possible. What we see is the people with the best score have a utilization ratio (the balance divided by the credit limit), of 10% or less,” he says. That goes for individual cards and the consumer’s collective total of credit lines and card balances.
One credit score rule-of-thumb used to be to keep the utilization ratio below 30%. “But 30% is the max, not a goal,” warns Griffin. “That’s the cliff. If you go beyond that, scores will drop precipitously.”