{"id":19348,"date":"2025-01-09T15:35:56","date_gmt":"2025-01-09T15:35:56","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/finance\/the-worst-cost-of-bad-financial-advice\/"},"modified":"2025-01-09T15:35:56","modified_gmt":"2025-01-09T15:35:56","slug":"the-worst-cost-of-bad-financial-advice","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=19348","title":{"rendered":"The Worst Cost of Bad Financial Advice"},"content":{"rendered":"


\n<\/p>\n

\n

I met with a family a few weeks ago for an introductory conversation. I\u2019m always interested to learn about people\u2019s history with money. It\u2019s an open-ended question that allows for a multitude of interesting answers. <\/p>\n

This family explained that ~20 years ago, they received a significant lump sum payment.<\/a> They reached out to a financial professional (a stock broker, e.g. Merrill Lynch or Morgan Stanley) in their town and entrusted him with their new-found money. <\/p>\n

That advisor recommended a single \u201chot stock.\u201d You probably know where this is going<\/em>. <\/p>\n

\n
\"\"<\/figure>\n<\/div>\n

Within a couple months of the family\u2019s initial deposit, the stock began to slip and slide. The family called their advisor for an update \u2013 What\u2019s the plan? Are we staying the course? Should you do something different? <\/em>No answer. Radio silence. <\/p>\n

The slide turned into a nose-dive. The company lost ~80% of its value in a year, and this family lost 80% of their lump sum. HELLO?! What are you doing?! Why aren\u2019t you answering us?!<\/em> <\/p>\n

The advisor gave a proverbial shrug, \u201cThis is the nature of investing. I wish it was different, but the dice simply didn\u2019t fall in your favor\u2026\u201d <\/em><\/p>\n

Enter anger, sadness, and guilt. The family contacted a lawyer to inquire about possible litigation \u2013 surely this was an inappropriate investment recommendation?! <\/em><\/p>\n

\n
\"sad<\/figure>\n<\/div>\n

The attorney said, \u201cYeah, you might<\/strong> have a case. But if you lose<\/strong> the case, you\u2019ll also lose even more money through attorneys\u2019 fees. My recommendation: cut bait, eat your losses, and move on.\u201d <\/em><\/p>\n

And that\u2019s what the family did.<\/p>\n

The Long-Term Cost<\/h2>\n

Fast-forward 20 years to their living room. I\u2019m listening to their story. <\/p>\n

The anger, sadness, and guilt was still palpable. <\/em><\/strong>All those years later, the emotion of being misguided, or confused, or simply the feeling of losing a large sum of money \u2013 those emotions don\u2019t simply fade away. The scar tissue is still there. <\/p>\n

That\u2019s one of the long-term costs of bad financial advice. <\/p>\n

\n
\"close<\/figure>\n<\/div>\n

But then I inquired about how this family had recovered from the terrible experience. How had they pursued financial growth in the interim decades? <\/p>\n

The short answer: they lived frugally (a solid start<\/em>) and plowed some money away into a bank account (another good step<\/em>). <\/p>\n

But they chose not<\/strong> to: <\/p>\n