“Personal finance publications bias their recommendations—either consciously or subconsciously—to favor advertisers.”
– Jonathan Reuter and Eric Zitzewitz, Quarterly Journal of Economics
Last Updated: August 6th, 2020
Table of Contents
- Has Kiplinger’s Sold Out (Part 2)
- Hot Stock Gambles – “Top Picks of the Top Pros”
- To Heck with Prudence – “Ignore the Doomsayers”
- (How NOT to) “Earn More on Your Savings”
- For Financial Advice NOT Brought to You by a Corporate Financial Sponsor…
Has Kiplinger’s Sold Out (Part 2)
Two weeks ago, we started a rant inspired by a single issue of Kiplinger’s that I picked up to read on a plane. In Part 1, we exposed the fallacies of the “How Much You Really Need to Retire” article that warned people not to “over-save” for retirement (since surely they can live on 60% of their former income), and faulty advice on “The Best College Savings Plans.” In case you missed it, here’s Part 1 of this series on the financial media bias.
Today, we look at three other highly problematic articles from that one slim Personal Finance magazine.
Hot Stock Gambles – “Top Picks of the Top Pros”
Frankly, the picks and comments included by some of the money managers in this article are telling.
Kiplinger’s quotes Sam Stewart of Wasatch as saying that at this late stage in the bull market, you’ll have to take on more risk to find great returns. He confesses that all his picks are “under a cloud of some sort of another” – such as a fund manager’s billion dollar bet that one company will fall, regulators holding up deals that cause another’s price to tumble, or a third, a REIT that investors have labeled risky.
How sure is Stewart of his picks? In classic double speak with all the skill of a politician, he states, “If they pan out, you’ll do well.” (Hmm… how’s that for contained enthusiasm?)
Other experts named some equally dubious picks. Mark Yockey of Artisan International is betting that retail player TJX COS (Marshall’s and T.J. Maxx) will rebound from its 16% drop earlier this year. Sarah Ketterer of Causeway Capital Management, apparently either a sucker for underdogs or a fan of travel, picked an airline with “super-low price-earnings” and the cruise line whose values are still sinking from the 2012 tragic accident off the coast of Italy and a 2013 on-board fire that caused a power outage and toilet failures.
I often wonder if these managers have any of their OWN money on these long-shot racehorses. If I was the gambling type, I’d bet against it. Based on this piece, it appears we have learned little from the contests where the fund managers were beaten at least half of the time.
The predictions of the “experts” are soon forgotten, as they find new ways to explain what actually happened when their predictions don’t come to pass. Sadly, investors seem to have been brainwashed into thinking that “investing” is synonymous with “risking money in the stock market.”
From Fantasy Football to Las Vegas to the stock market, Americans are addicted to speculation. From Kiplinger’s to the more independent Motley Fool, financial publications are happy to capitalize on this addiction. And just like Vegas weekends, the only safe bet is that the house will find a way to rake in the profits, regardless of the “luck” of its players.
Yes, in a scant majority of the time, money managers can “beat the market.” Although – that’s BEFORE their management fees, redemption fees, and potential 401(k) administration fees are considered. (And then remember there are taxes.)
As Allan Roth stated in a WSJ.com article, “Investment Fees: Even Higher Than You Think?”, “The hope, of course, is that the investor can find the manager who will be one of the very few who can consistently beat the market. My own research shows the odds of winning that game are less than 1% in the long run.” (And mind you – beating the market by a hair is not much of a prize when the market is on a losing streak.)
To Heck with Prudence – “Ignore the Doomsayers”
In this editorial, Kiplinger’s senior editor Jeffrey Kosnett cites all the reasons we SHOULD be nervous – then brushes off the “massive amount of outstanding U.S. debt, the budgetary woes of Detroit and Puerto Rico, turmoil in the Middle East and along the Russia-Ukraine border, fears of a collapse in Chinese real estate, and supposedly irresponsible U.S. and European monetary policy” with assertions that the economy isn’t feeble and there is no sign of “tangible economic or financial disasters.”
While we agree with Kosnett that headlines can overstate matters (especially where fear of disaster is being drummed up), we suspect the “Ignore the Doomsayers” is yet another case where a headline is taking things a bit too far. Does he expect the bull market to continue forever? Is the concerned reader/ investor who emailed him wondering if getting out of some of his market holdings is really off-base, or just prudent?
The editorial begs all kinds of larger questions. How many investors wish they had “sold high” in 2008 when they had the chance, and how many advisors encouraged investors NOT to sell before and even during the long ride down? What’s an editor supposed to say when their magazine is largely supported by companies that depend on readers letting their money “ride” on the market?
Yet the article that really made my head spin was still to come…
(How NOT to) “Earn More on Your Savings”
The sub-headline of the “Earn More on Your Savings” article read, “These accounts let you eke out extra interest on your cash.” For a brief moment, I had a little glimmer of hope that someone in the major financial media would finally “get” what we’ve been telling clients for years… that savings accounts, money market funds, and bank CDs are NOT the best place to store cash! And yet, I was about to be disappointed again.
Kiplinger’s picks? Money market funds earning up to .95%, a savings account yielding 1%, high yield checking accounts (with complex rules to use both the credit union’s debit and credit cards substantially every month), and certificates of deposit boasting between 1.05 and 1.66% (the latter for a 3-year certificate). Of course, those rates are BEFORE you get hit with taxes.
While these are extremely competitive rates that put most banks to shame, once again the corporate financial media ignores the leaner and more productive participating mutual companies that are owned by the policyholders and are currently paying dividends of about 4.5% – after expenses and without taxation – on cash value accounts.
Permanent whole life insurance is often severely misunderstood and misrepresented. While it does take a few years to see the cash value equal the premiums you’ve paid into the account, there is no comparison to another form of safe, liquid savings when you take into consideration:
- the internal rate of return that continues to build equity on at several times bank savings rates;
- growth of the cash value without taxation (growth can be taxed if withdrawn or received in dividends beyond the basis, but loans are tax-free);
- the ability to leverage against a whole life policy and borrow as much as 90% of cash value for any reason without qualifying;
- the value of the immediate death benefit which instantly increases the net worth of an estate; and
- benefits in case of potential disability and even need for long term care (depending on the policy and your state of residence).
Furthermore, the fact that these types of life insurance companies don’t participate in fractional reserve banking and don’t carry the same risks as banks for American savers or the economy is an immeasurable benefit!
Is ALL the advice in Kiplinger’s biased? No, there were well-written articles of value. However, the overall financial worldview of the magazine is severely limited, and it is VERY important to realize that this is the case with all “major media” financial publications.
For Financial Advice NOT Brought to You by a Corporate Financial Sponsor…
For sane, safe solutions for where to store cash, and for information on cash flow or growth investments that have produced double-digit returns for our clients with no risk of principle, contact your Partners for Prosperity today. You won’t find any financial media bias here, just solutions that work!