Warren Buffet Says AVOID Financial Advisors Like the Plague (Is He Right?)
03/06/24 • 8 min
5 Listeners
At a recent Berkshire Hathaway annual shareholder meeting, Warren Buffett shared his thoughts on why he sees financial advisors as the worst people to trust with your money.
Buffett believes that financial professionals in aggregate can’t do better than the aggregate of the people who just sit tight.
David agrees with Buffett’s view on active versus passive investing.
According to David, Buffett’s point of view and approach don’t account for the high cost of investor behavior.
The fact that 90% of investment decisions are driven by emotions is a big problem David sees in Buffett’s line of thinking.
David sheds light on what has become known as the Prospect Theory.
What leads “DIY investors” to buy high and sell low, instead of buying low and selling high as logic would suggest? David shares his thoughts on the matter.
Adopting an index-based, Do-It-Yourself, motion-driven approach to investing will make you less likely to remain invested during extreme market volatility.
For David, one of the main purposes of a financial advisor is to hold your hand and keep you invested during jittery periods in the market.
Mentioned in this episode:
David's books: Power of Zero, Look Before You LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code
PowerOfZero.com (free 3-part video series)
@mcknightandco on Twitter
@davidcmcknight on Instagram
David McKnight on YouTube
Get David's Tax-free Tool Kit at taxfreetoolkit.com
At a recent Berkshire Hathaway annual shareholder meeting, Warren Buffett shared his thoughts on why he sees financial advisors as the worst people to trust with your money.
Buffett believes that financial professionals in aggregate can’t do better than the aggregate of the people who just sit tight.
David agrees with Buffett’s view on active versus passive investing.
According to David, Buffett’s point of view and approach don’t account for the high cost of investor behavior.
The fact that 90% of investment decisions are driven by emotions is a big problem David sees in Buffett’s line of thinking.
David sheds light on what has become known as the Prospect Theory.
What leads “DIY investors” to buy high and sell low, instead of buying low and selling high as logic would suggest? David shares his thoughts on the matter.
Adopting an index-based, Do-It-Yourself, motion-driven approach to investing will make you less likely to remain invested during extreme market volatility.
For David, one of the main purposes of a financial advisor is to hold your hand and keep you invested during jittery periods in the market.
Mentioned in this episode:
David's books: Power of Zero, Look Before You LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code
PowerOfZero.com (free 3-part video series)
@mcknightandco on Twitter
@davidcmcknight on Instagram
David McKnight on YouTube
Get David's Tax-free Tool Kit at taxfreetoolkit.com
Previous Episode
George Kamel Swings and Misses on Indexed Universal Life
George Kamel recently released a video on index universal life. On the surface, it looks like a ruthless exposé of a financial scam that millions of Americans are falling for.
But when you scratch just below the surface, his critique of IUL is a steaming cesspool of half-truths and outright lies that are designed to sell you a term insurance policy through a Dave Ramsey-sponsored term insurance broker.
According to Kamel, the IUL is a financial scam marketed as a secret wealth hack, yet in reality, it’s a money-eating monster.
Yes, IULs are marketed by pretty scammy people on social media. However, there is a big difference between scammy life insurance agents and scammy life insurance products.
IUL products are not created equal. It all depends on your personal situation and needs. Some products can be fantastic tools for building and protecting wealth and others can be catastrophic to your retirement.
For David, not only does the IUL serve as an extremely competitive bond alternative, but it’s also a great volatility buffer in retirement.
Financial gurus are not in the business of nuance. It’s all about making sweeping black-and-white characterizations that fit neatly into their tiny box.
According to David, recent studies demonstrate that bonds are much more volatile and much more correlated to the stock market than was previously thought.
David explains that fees are only a problem in the absence of value. And when utilized in the right context, an IUL provides value that you simply can’t get any other way.
David explains how the IUL fees are a strength and not a liability that the uninformed life insurance critics make it out to be.
When George says that the IUL is a money-eating monster, he’s only fixating on the fees in the early years of the contract. If he were to look at the average fees over the life of the program, a much different picture would emerge--one that paints the IUL as lower than the most cost-effective 401K plan.
David goes through the things George gets wrong about the death benefit options in an IUL.
The entire purpose of George’s video is not to educate you on the evils of an IUL. It's to get you to buy a term life insurance policy through Dave Ramsey’s endorsed broker of choice.
George's ultimate goal is to get you to take the money that you might otherwise have allocated towards an index universal life policy and redirect it towards a term insurance policy from which Ramsey himself ultimately benefits.
Mentioned in this episode:
David's books: Power of Zero, Look Before You LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code
PowerOfZero.com (free 3-part video series)
@mcknightandco on Twitter
@davidcmcknight on Instagram
David McKnight on YouTube
Get David's Tax-free Tool Kit at taxfreetoolkit.com
Next Episode
The Two 5-Year Roth Rules Explained
This episode explores the two different five-year rules for Roth IRAs instituted by the IRS to prevent people from abusing them.
The first five-year rule applies to earnings on Roth contributions and determines whether those distributions can be taken tax-free.
The second rule concerns Roth conversions and lets you know whether conversion principles can be accessed penalty-free.
David explains that, for the purposes of the five-year rule, the clock starts the first time any money is contributed to a Roth IRA by either contribution or conversion.
Once the five-year rule has been met, it’s been satisfied for good.
Remember: any recent contribution to a Roth IRA can count as qualified tax-free distributions, even if they’ve been in the account for less than five years.
David shares that Roth 401k plans have their own five-year rule, which is counted separately from a traditional Roth IRA.
In case you’re unable to make a Roth contribution due to income limitations, you can make a non-deductible contribution to an IRA and then do a Roth conversion.
Don’t forget that there aren’t income limits for IRA contributions.
Dave discusses the fact that “the ordering rules for Roth IRA stipulate that withdrawals of after-tax contributions are made first, then conversions, and finally, earnings.”
The Roth conversion five-year rule lets you know if you can access your converted principal penalty-free.
The Roth contribution five-year period, on the other hand, lets you know if you can access your Roth earnings tax-free.
Mentioned in this episode:
David's books: Power of Zero, Look Before You LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code
PowerOfZero.com (free 3-part video series)
@mcknightandco on Twitter
@davidcmcknight on Instagram
David McKnight on YouTube
Get David's Tax-free Tool Kit at taxfreetoolkit.com
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