What Happens When You Ask for Financial Advice in Public

There aren’t too many household names in the world of investing – but Warren Buffett is one of them. His annual shareholder letters are famous beyond financial professionals for his clever quips and keen insights that find their way into mainstream media and to the casual market observer.

One of Buffett’s common refrains is that most people would be better off in index funds than trying to beat the market. He even shared that upon his death, his estate plan directs his wife’s stock portfolio to be invested in a single index fund tracking the S&P 500.

It’s common to people criticize such a simple investment recommendation, but Buffett writes his letters knowing that millions of people will ultimately read it. And in many cases, those readers might only get a single sentence that’s not in context of the whole message, through someone else writing on what they thought of the letter or via a media sound bite.

When you know there is no one-size-fits all advice, you can appreciate the challenge he faces when sitting down to write these letters (and I think he does a good job of handling that challenge). The same thing applies when he answers questions at the Berkshire Hathaway annual shareholder meeting.

As someone who regularly publishes investment and financial planning guidance, I know one-size-fits-all solutions are few and far between. That makes giving personalized advice difficult in most public situations.

When You Don’t Have Time to Give Personalized Advice

I find it extremely challenging when someone asks me an investment or financial planning question at a social event where the response time is limited.

Whether I’m on the golf course, having drinks or dinner with friends, or at a larger social gathering, there’s an unspoken social contract that says the person asking wants an easy-to-digest answer – not a full dissertation on Evidence-Based Investing or my core investment values.

In those cases, my advice becomes more about how the other person can minimize error rather than taking the optimal actions for their specific situation.

A great example is when people ask me: “Where should I be investing my money?”

If I only have 15 to 30 seconds to give a complete answer, I might say something like “in low-cost index funds.” This is frequently the safest answer I can give with limited time and information the person’s specific situation.

While I’m a huge proponent of index funds, I don’t personally invest in them for my own portfolio. I’m invested in something that is very similar to an index fund in that it is low cost, rules-based, and systematically rebalanced with low turnover. These are the same characteristics that make index funds such a great choice relative to the rest of the investment universe.

However, the typical index fund uses a company’s size to determine its weight within the fund. The funds I use systematically incorporate portfolio characteristics (i.e. factors) other than size, such as “value” or “quality,” that research shows can improve risk-adjusted returns over time.

Even that brief explanation of what I own in my own portfolio could leave you with more questions than answers. Or you may decide that I just don’t know what I’m talking about if my answer sounded like rambling to you.

But if you asked me the same question in my office and I didn’t have to give you a lightning-round response in 15 seconds or less, then I have time to calibrate the discussion to your particular situation and take the time to provide you with all the detailed explanations and nuances you wanted.

I don’t need a PowerPoint deck to explain how I believe you should invest your money, but it helps to have more than 15-30 seconds and some basic understanding of your personal finances. And that takes us back to Buffett…

Ask A Broad Question without Context or Specifics, and Get an Answer Based on Broad, Generally Acceptable Advice

Buffett probably knows that any word he speaks or writes is at risk of being pulled out of context.

It’s much safer to give broad advice that minimizes damage than to hope that everyone who consumes financial media is an unbiased truth-seeker and reading the primary source: the letter itself.

When I give an interview in print or on TV, my responses emphasize simplicity and are targeted to a broader audience. I stay away from the details that only a finance nerd like myself would find interesting.

When I’m with people in a social situation, I’m likely to say that I’m a proponent of passive investing (even though I believe the active vs. passive debate is flawed).

Depending on the context, I might indulge a little more and say I take a forecast-free approach using low-cost funds because there is overwhelming evidence that trying to beat the market is a loser’s game, even though most of Wall Street wants you to believe otherwise so they can charge you more.

But that’s about as far as I’ll go, because it’s impossible to give good investment advice without knowledge of a person’s goals, risk tolerance, and current financial state.

The best I can do with a short window of time is help you avoid mistakes. After all, a lot of investment success is about minimizing errors so that you get the full benefit of compounding over multiple decades.

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