Are You Hearing Truth Or Financial Sweet Nothings?


Are You Hearing Truth Or Financial Sweet Nothings 04 05 2016While it might be tough to admit, many of us prefer what we want to hear rather than the unvarnished truth.

And while yes, the truth can be painful, isn’t it far better to deal with it up front? The pain when reality hits can be far greater…

Samantha, 33, considered herself pretty savvy. She was an up and coming graphic designer who was starting to get noticed. “I borrowed money from my parents to invest in a tech IPO that my stockbroker (or was it a friend?) assured me was a guaranteed winner. He called this stock ‘a can’t miss innovation’ and insisted that I stood to make a big score. Now I have nothing but worthless securities and a debt to my parents that I cannot repay. I feel miserable about it!” 

Carla, 55, was a successful entrepreneur and rarely made serious errors. The letter she held in her hand explained that the limited partnership in which she had invested was in trouble. They needed to raise capital or the venture could be lost entirely. And, there was no guarantee that the additional funds would turn the project from disaster to success. “The guy who sold me this thing pointed to all the past successes of these guys. He showed me the projected income from the project, the benefits and set an expectation of a great deal. He was quick to point out that he had several other people who were anxious to take this unit if I passed, so he had to know soon. It seemed like a no-brainer. Wow, big mistake!”

Janet, 62, clutched the life insurance illustration in her hands. “The agent told me that I’d only have to pay for ten years, then the cash would accumulate and I’d be able to use the money for retirement. But last week I got a notice that I need to start paying into the policy or it could collapse. I bought it based on his illustration showing all the cash that would be in there—and now there’s nothing. I am really mad!”

What these examples have in common is the lack of knowledge each possessed when they made their decisions—and how much they relied on those selling the products to give them good information. Unfortunately, they were only told the features and benefits of making such a decision. Somehow the possible pitfalls or downside were left unexplored.

Our greed factor—and yes, we all have one—is hungry to hear the upside and the possibilities of future success. We don’t want to focus on the downside; after all, like buying a lottery ticket, you have to put your money down to win.

But the playing field is not level. These purchasers did not have the expertise or foresight to even ask the right questions—making them an easy mark for anyone with a great pitch and shiny brochure. They are otherwise smart people—it’s just that they received a shot of adrenaline with every thought of a big score. Their internal fantasy runs the show and keeps them from digging down to the cold hard truth.

We are inundated by companies promising (or at the very least alluding to) stellar results. Mutual fund companies are delighted when their funds are given 5 Star ratings from Morningstar—they’re then widely distributed and promoted. But when the fund falls out of favor, which is almost inevitable as the market changes, they’ll promote the newest fad fund instead.

And they are quite happy to have you sell off Fund A in favor of Fund B. So instead of creating a long-term allocation that will have normal ups and downs, you’ll perpetuate a manic chase of the latest and greatest 5 Star funds.

Let’s face it, most buyers are not going to delve this deeply—who has the time and interest in devoting hours to trying to parse truth from the tangle of slick marketing and celebrity endorsements?

And yet, unlike Samantha, Carla and Janet, you want to activate that part of you that demands full information, complete disclosure and a reasonable statement of risk. Isn’t it better to know the truth up front than let it slam you in the face when you least expect it?