This week we are joined by John Robertson PhD to discuss the credibility of online anonymous financial advice. Also John gives some highlights from his new book “The Value of Simple” to be released in early December 2014.
*Updated Nov. 11 2014
Here is an excellent articulation of the problem we discussed on this Episode, Sandi thought it should be included as a resource here.
John: Guest John Robertson PhD
Robb: Robb Engen
Sandi: Sandi Martin
Jackson: Jackson Middleton
Robb: Welcome to Because Money, and we’re happy to be here with special guestJohn Robertson, the holiest of holy potatoes from holypotato.net. WelcomeJohn.
John: Hi Robb, hi Sandi, hi Jackson. How are you guys?
Sandi: Good as always.
Robb: Yeah, we’re doing awesome.
Jackson: Living the dream.
Robb: So today we thought we’d have a fun discussion here about the value of online advice or anonymous advice. So obviously, we all write blogs and one soon to be a book, or you already have a book in the queue, but you’ve got another one on the way, John. But online, we’ve got anonymous users asking questions, pretty detailed questions about financial advice in forums like reddit or the Canadian Money Forum, all kinds of places on our blogs, emailing us asking for advice. How do we take that? What kind of value is there in some of the answers that you see on reddit or on Canadian Money Forum? Because, you know, personal finance is personal, and if you don’t have a lot all the information about that particular person, how can you give constructive feedback on their question.
So I thought I’d kick it over to Sandi to maybe talk about some examples of online anonymous advice, or what value do you see in it?
Sandi: Well, John has a good example. I just wanted to preface it by saying that when we were planning this episode, I was make so rather derogatory remarks about online or anonymous advice.
And John kind of caught me up on it, talking about that it can have value. And I had to spend some time thinking about it because obviously we all— maybe with the exception of Jackson—I know we all hang around on the Canadian Personal Finance reddit thread, and obviously if I’m giving advice, I have to think there’s some value in it, right? But I realized that what I think the value of the advice is that it’s a starting point. So I think some people don’t recognize it in that way, but they’re worried about going to a professional… Oh, a lot of the questions are like, you know, “Am I going to have to pay taxes on XYZ if I got back together with my girlfriend, and then we moved into a different house and then we have four kids and then we split up again?” Often the questions are quite complex and it’s hard to just answer just kind of by typing on your phone or whatever.
But it’s a good place to start, to look for the terms, and find a phone number to call, or an “can I encourage you just actually to talk to an accountant or to Revenue Canada about this?”. So yeah, it’s a good place to start, but if could sum it all up before we even start the show, I would say it’s only a place to start. And then you kind of have to dig deeper.
John: Yeah, I’d say that I’m honestly shocked at how good anonymous advice online is. I mean there are some bad examples, and it is brief. So that’s the first thing that going to happen when you’re going with anonymous advice online and trying to get someone to talk to, is running into this problem of too long, did not read. I tuned out, I couldn’t listen to your whole thing. It’s just too much to try to put up your entire story there in a post on web forum and someone actually read it—without getting paid to read it—and then provide personalized advice for you.
So when we’re talking about advice, we have to keep in mind, but when we’re talking about people talking about financial matters online, then we’re talking about stick figures. It’s not a whole portrait of a person with details and freckles, and individual hairs. It’s a stick figure. And if you approach it that way, you’d probably get decent general advice, like Sandi says, as a starting point or a generalization.
But if you try to get really, really personalized advice, that’s where you tend to see the worst come out because it’s really hard to do it that way.
Robb: And the too long, didn’t read is a is the perfect example of even just in a regular conversation where someone has a such a strong opinion. Before you even blurt out what your question is, they’ve got the answer for you without even really understanding your situation, and it’s black and white to them. And that’s so often not the case. There’s a lot of grey areas in personal finance, and that’s why I find a lot of the answers on some of those forums to be very black and white, and possibly didn’t read into the whole post or the whole question.
John: You can get a lot that, especially where there’s a lot of controversy around a particular issue, and where people have really strong feelings about it. Like someone might come in and say, “Oh how can I analyze the stock to be a dividend growth investor?” and then you have six people jump on say “No, no, no index investing is definitely the way to go.” You’re not thinking about it right if you’re trying to even become a dividend growth investor in the first place.
Robb: Yeah, I find that a lot on the Canadian Money Forum. There’s the division between the index investors and the dividend investors. And any time the dividend investor, or wannabe dividend investor, will post something they the barrage of “You shouldn’t look at just by the dividend…” blah, blah, blah. And there’s no real constructive answers to his question, I guess.
Sandi: Sometimes there’s just not a lot of room for a nuance sometimes, but obviously that’s where some of the people who we’ve talked about in the past that stand out as people that give really good advice are the people that can give either really short, succinct, “this is where you need to go to get that information” kind of answers, or “tell us more and these are the five things that you need to tell us so that we can help you”, or very nuanced, long kind of “let’s consider all the options and maybe kind of the background of what you’re asking”.
Those people stand out. We were talking about it and we made a joke about it, but I have like a girl crush on one of the people that writes on reddit. Every time she says anything, I’m like “Just listen to her. She’s fantastic.” It obviously not me.
Robb: So how many of these questions are just like throwing questions out, looking for that starting point, like you talked about? I don’t want to play someone for this advice, so I’m going to crowdsource the answer.
Jackson: Well that’s exactly what I wanted to ask, Robb, but I think you’re nailing it. What is the profile of someone who’s willing to ask questions anonymously online, and what is the profile of somebody who’s willing to answer those? Do we trust the person that’s asking them? Are they just cheap and looking for an easy answer? The people that are answering it, and why are they answering it? Is it actually professional who are looking to source new clients, or is it just people who think they know everything and want to pontificate? That would be my question.
Sandi: I don’t know. I would add a third person, because I would say professionals looking to seek new business are often viewed with distrust. That’s why I don’t think I’ve ever one time even hinted at the fact that’s what I do professionally.
For the very same reason, I think a lot of those people are not trying to seek those professionals out, right? There’s a lot of distrust. Sometimes it’s warranted, and other times it’s not. It doesn’t hurt you to go and start asking questions. You’re not forced to buy anything. Even if you go to the bank— you know how much it hurts me to say that. Nobody’s forcing you. You don’t have to pay a fee to go in. You could start asking questions and use your brain to assess the validity of what somebody’s telling you, and not make a decision when you’re there.
I think people are very unwilling to go to professionals, like mortgage brokers, like financial planners, like investment salespeople, because the worry that they’re going to be sold to and don’t know how to assess the information, and feel like asking anonymously is safer in that way because of the level of distrust, than going to one of those kinds of people.
I know it seems weird and offensive maybe. Does that make sense? Am I off‐base do you think?
Robb: That makes sense, and I think a lot of those forums do discourage the open solicitation of business. I’m not going to put in my signature that I’m a financial planner or even links to your own blog if you just kind of trolling for traffic, they really frown upon that. So I think there a trust of the community in that sense, that they’re going to get at least some ideas that they can go forward with, rather than going in kind of blind to that professional, who then sell them something that might not be in their best interests.
Sandi: But they didn’t give the really bad stuff. [laughs]
John: I think the other type of person who goes online looking for advice is someone who isn’t necessarily distrustful of bank A store for profit-based advisors, is just they don’t want to bother someone. They say, “I just have a little question and I don’t really want to go and bother.” It’s online and especially if they’re still under the impression that people at the bank work for free.
Sandi: Do you know what though? I think you hit on something else. I think some people don’t realize the complexity of the question that they’re asking sometimes. It think there’s that general sense that there’s one right answer and if I can just say, “Hey, this how old I am. How should I invest this money that I have?” and there’s one objective answer that everybody online knows, and they can just ask the question. Instead of asking Google, then reddit’s going to tell them.
And then it takes a while to understand your own circumstances are about as complex as your face is. [laughs]
Robb: Freckles and all. [laughs] And that’s a really good point about you think it’s a simple question, so I’m going to ask you because I perceive you as an expert, or whatever. If they’re emailing an individual blogger or author, or asking a community that they trust, just thinking it’s a simple question. And I think that kind of leads me to someone like “I’m Doug Runchey, the CPP expert, so ask me anything.” But the CPP calculations are so complex and there’s so many different scenarios, so he says, “Well look I’ll run them for you but it’s going to cost a fee, and here’s what service looks like.” And I remember another expert in a particular niche subject trying to do the same thing because he’d get all kinds of questions about this particular topic, and they weren’t just simple answers.
Some people I know, like the Oblivious Investor, Mike Piper, down in the States. He turned off comments on his blog and he’ll get a lot of emails on those questions and he’ll answer them and make a blog post out of it. And I think some of those have even led him writing short books. It’s such a complex question that a real expert shouldn’t really be able to answer it in a brief reply, so they’ve kind of turned that into a little niche service. And I wonder what kind uptake there is from the consumers on that side of the equation. Have you guys seen that kind of willingness to pay for what you think is a small question or a simple question?
Sandi: I don’t know. If people don’t know about Doug Runchey, I have used him for other clients. It’s not a simple question. I mean, it’s a complex calculation that he does. But his accuracy and fee is so relatively small. If you’re approaching 60 and your thinking you’re going to retire early or if the childrearing dropout applies to you, you should pay the money and go talk to them. There’s the plug for Doug Runchey. [laughs]
So John, you said you had found some kind of bad examples of some anonymous advice or some anonymous questions. Can you share that with us?
John: Yes, I brought up a couple. So the first one is kind of a little bit of a specific example of a more general issue, which is where the advice is just plain wrong. It maybe is that they got the details wrong, and sometimes these people can be there adamant in their opinions about whether they’re wrong. So I’ll get to one example where someone’s really adamant about it and they’re wrong. But in this one I’m not sure if it’s visible over the YouTube, but someone that’s just basically asking, “When do I start using my RRSP? I’m thinking of buying a house.” Someone says go ahead, use the First-time Home Buyers’ plan. This allows you to pull up to $15,000 tax free, and it will be doubling your money. Now that’s not how the Home Buyers’ works. It’s sort of, almost, but the numbers are really wrong. It’s $25,000 and it’s not anywhere close to doubling. That’s one kind of example where…
Jackson: That’s irking me because I’m a mortgage broker and I would say that a third of my clients use the Home Buyers’ Plan, and it’s $25,000 for an individual, $50,000 for a couple. Now to double your money, I’ve heard it’s a strategy that people will take their savings, put it into the RRSP, wait the 90-day grace period to get the tax benefit, and put it out. So I guess if you’re at a 45% tax bracket, you can get the benefit of getting the RRSP, but you still have to pay it back. You’re not doubling your money.
John: Even if you’re in 50% tax bracket, you’re getting 15% back. And that’s if you’re assuming that this is a total benefit to you and not considering that eventually you are going to have to pay that back.
Jackson: I think we found a good example.
Robb: Did he get down-voted, John?
John: Actually, he’s still at a positive when I took this screen shot. If you’re not familiar with how reddit works, people will up- and down-vote hosts. And often in the personal finance section, people will down-vote posts that are inaccurate, which is kind of a tag if you see a post that’s got a lot of negative points to it, that might be advice that others have come along and seen as inaccurate, and often will fix it. But reddit is actually pretty good at self‐policing and self-correcting, but it takes for that to happen. So if you post a question, you get a response two hours later and then you run with that, two days later someone might come along and correct it, but it might be too late for someone who’s read that post in the meantime.
So another case where someone was really adamant about something that just wasn’t correct was a discussion about index investing using TD’s e-Series, which are a very popular option for index investors who want to go with a low fee, fairly easy to use mutual fund. And there are no commission costs to buy and sell TD e-Series either through TD mutual funds or through TD direct investing/waterhouse.
This one guy was just adamant. You know in Waterhouse you have to pay a $29 fee, or $9.99 fee, depending on how much you have in your accounts. And everyone’s just going, “No, that’s not right” and he linked to an email that he got from a rep. And it just turns out the rep sent him wrong information when he sent a query. But he’s never actually tried it him himself And the vast majority of the community say no, this is wrong, and he’s just continuing, like thread after thread, he’ll jump in and say, “No, no, no, TD charges you a commission to buy and sell e-Series.”
Sandi: Oh dear. [laughs] You know, John, that’s a very good segue into something else that I wanted to talk about with you, which is why don’t you tell us a little bit about… We know that you had an older book, so why don’t you tell us a little bit about your new book?
John: All right, well let’s go over to the cover here. So this is the new book, “The Value of Simple”. And basically what it is, is a book that I’ve put together about how to become an index investor, because that’s something I’m finding that’s missing in the marketplace. I can send people to blogs, to a whole bunch of books in the library explaining why you should become an index investor. There’s great information out there. In some books they say it’s the only strategy you should follow, and provide lots of proof of why trying to be an active manager just will not work. But even if you take a weaker view of that, for someone who doesn’t really know what they’re trying to do, who doesn’t have the patience to analyze a balance sheet and really dig into kind of Benjamin Graham type investing, or some of these other investing styles that require a lot of time and effort and expertise.
Index investing is a great way to go to save fees, avoid paying all those bank fees for advice that you’re not getting. And it’s very, very easy to do. The problem is none of these books actually tell you how to do it. The best that they’ve done so far have been the books that came out around 2011, the “Millionaire Teacher” and “The Money Sense Guide to the Perfect Portfolio”.
And even then, they’re very weak on the how. They’re like, go to TD, go to some of these other brokers, buy some of these index funds. And just even mentioning which index funds are available in Canada, for Canadians, was revolutionary. So this book is all about the hows. It’s how do you set up an account, how do you buy, how do you create an asset allocation so that you can split it up. What all these terms mean? And it’s trying to make it very friendly for people who aren’t experts in this field, so that they can pick it up, read through it an actually get started on their own. Or if they don’t want to get started on their own, at least they know what’s involved in doing that part of it, so that they’re paying someone else to do it for them, they know what value they’re getting there.
Robb: One thing I thought was interesting, John, was that was that you mentioned some of those books that came out in 2011, and a lot has changed in the landscape, like Vanguard has come to Canada and fees have dropped and whatnot, and maybe talk a little bit about that placeholder you’re going to have online that will be continually updating how to do these things, if links are broken we’re fixing that, and kind of that real go-to resource that I think is missing in the marketplace.
John: Well, I wouldn’t say it’s completely missing. A number of the blogs do provide this information. So if you follow any of the personal finance blogs that focus on indexing, in particular Dan Bortolotti, on the Canadian Couch Potato Blog. He’ll update with a lot of this. Now one issue with the Couch Potato Blog, is he really gets into the fine nitty‐gritty that can scare some people off. And that’s another thing I’ve tried to focus on is to help build up their confidence. This isn’t that hard if you just want to get going and invest for yourself.
So what I’ve done on my site is create an errata section because things will change after a book is locked down, and that happened the last time. My previous book was a much shorter, smaller book. Just a little itty-bitty electronic-only thing. If it had had been printed out into book form, it would have only been about 40 pages. And all that did was tell you how to invest in TD e-Series. It didn’t go into some of these planning issues or tax optimization, or even the other options with Tangerine and using ETFs on kind of either side of the e-Series. It was just e-Series. Just really focussed on that. And shortly after I published it, Scotia iTRADE and a couple other brokers eventually Questrade came up with free to buy ETFs. And of course one of the big reasons for going with TD e-Series was you didn’t have to pay commission costs. Well now that’s not quite a concern. I think it’s still a good option for other reasons that I get into in the book.
Pretty much as soon I get published, things change. And things are going to continue to change like that. So I reserved a spot on my website where you can go and find out what’s updated since the book was published. So you can follow along with any changes.
Robb: That’s great.
Sandi: I think that’s a fantastic idea.
Robb: So when is this hitting the shelves, John?
John: So I set for a December 1st my site. It’s not available through Amazon or Kobo or Indigo yet. I’m not even 100% sure it’s going to be listed in Indigo because that’s kind of an option, whether to take it up. I know it will be listed in Amazon and Kobo, and it should be available for pre-order there more toward mid-November. And then December 1st , it should have for sure.
Sandi: And you have a spot on your website where people can pre-order?
John: Yeah. So they can pre-order today if they want, through my website directly, and then in a few more weeks through the retail partners.
Sandi: That’s pretty fantastic. So let’s go back one step. Back to anonymous advice. So we’re going to have some specific samples. Can you think or anecdotally, Robb or Jackson, can anybody come up with the very worst question you can think of to ask anonymously, or not anonymously?
John: For people to answer anonymously.
Sandi: Sure, for people to answer anonymously.
Robb: I don’t know, I think I saw one on Facebook. If someone needed to make $200 by Wednesday, and some of the advice she was getting was not really constructive, I don’t think.
Sandi: [laughs] Oh dear. I saw one very similar on reddit. Actually that was a while ago. I really need to make a lot of money very soon, very soon. I need legitimate options.
Robb: Yeah, there’s a lot of kind of “hit and run” questions. I don’t really know what they’re expecting to get out of it, especially some of those type of questions. I think one of the answers to that one was “Move to Alberta and get a job in the oil sands.” [laughs] I guess it goes back to what we were saying, like if you don’t know the whole situation, how can you get any sort of advice on something life-changing like that?
Sandi: [laughs] Are we just going to tell silly stories for the next five minutes?
Robb: Sure. You’ve had to have heard a bad one, Sandi.
Sandi: No, I’ve never heard a bad one. Yes I have. The ones that I see all the time are like, “I’m 27. This is how much I spend on food and how much I spend on gas. Can somebody tell me if that’s okay?” I don’t understand really why you’d ask that question on the internet.
Robb: Yeah, like what’s the point of the “I spend $300 a month on groceries. Is that okay or where does that fit into the average?” It’s so arbitrary.
Sandi: Nobody ever asks us like, “How many kids do you have?”
Robb: I don’t know. I just don’t see. Okay, well I spend $400. Well, okay, well where are you shopping? Whatever you’re spending has no bearing on my family life or even how I categorize groceries in my budget. To me, groceries includes toilet paper and stuff you buy at the grocery store, because I’m not going to break down my whole bill. So okay, my bill is a little bit higher.
Jackson: And on this advice. That’s an interesting one. Is this me? Is somebody not wearing headphones, because I’m getting a lot of echo? Is that you Robb?
Robb: No, I’m wearing headphones.
Jackson: My problem is, is when you Google search a question and you take the top response, and you find somebody, how do you know that that information is accurate?
I think online it’s really difficult to figure out what is good information. Really. For me, like for example, I know this isn’t finance-based. But if we’re looking for an apartment and we don’t know the area, it’s a different landscape in a week, it’s a different landscape in a month. So I think finding somewhere online I think they’re important. You’re talking about a thread. Sandi, you’ve got a girl crush on somebody. It’s because you’ve got the familiarity. So I think if you want to avoid the bad advice, if you build familiarity with somebody somewhere, or some kind of community. Does that make sense?
Robb: It does, and the Google search one drives me nuts too. Because I know a lot of bloggers. It’s kind of a tricky thing, I think, but you can remove the date the article was posted from appearing in the little Google snippet. So I could have written some article in 2010 that has no relevance whatsoever, and say it ranks on the top page of Google and somebody hits on that, and then acts on that advice, I think that’s really bad.
John: Yeah, I think it’s really important to come in with at least a little bit of knowledge. Even if someone gives you good advice, you might not be able to do anything with it if you don’t understand what you’re coming in with. And it also makes kind of some of the silliest questions. Like someone will come in and say, “I want to invest in something. I’d be happy with a 15, may 20% return, and I want no risks.” And then you try to say that’s not remotely realistic.
But if they don’t have the knowledge to know that and if all they know of what an approximate return is just from Toronto billboard condo ads, naming ridiculous 20% returns, then they don’t have a basis when someone says, “Oh well, if you invest this way, you have a chance of losing 50% of your money. and over the long-term you’ll probably make 5 or 6%. And they go “That’s insane. What are you talking about? That makes my stomach roil.
That’s too risky for me, and not enough return.” And you go, “Well, that’s what it is.” I appear to be the only one un-muted, so I’ll just keep talking. So another issue is when there are conflicting issues with different posters’ values. So some people will come up and say. “Should I save on a plan looking for a home or should I use the Home Buyers’ Plan, or should I use CMHC insurance to buy as soon as possible. And then you get just a big spray of information from different posters, because some people believe that 20% is sacred, that you have to buy a house with that.
Some people think, oh no, buy as soon as you can. That’s what CMHC is there for. If you can even wrangle 0% down by borrowing a downpayment, then do that. And so you get this big mix and it’s really hard to work from that.
Robb: I was going to say, a big one that I’ve seen all the time is the short-term stuff, “So I’m saving for a house and I want to buy in a year or two, and I’ve got $20,000 or $50,000. Where do I park it where I don’t just earn 1 or 2% interest?” Well the answer is, you can’t really. They want to put it into something. Just like you said, I want to put it in something where I can get some growth out of it, but I don’t want any risk. Sorry, that doesn’t exist. The best option is some kind of high interest savings account, but a lot of people don’t want to hear that.
And that’s probably one of the more common questions, I think on a site like reddit.
John: And of course the problem is someone will come in and have the point-of-view that this other thing is a really safe way to do it, so go do that. For instance, “Just go and invest in some private second mortgages. I made 8% on that and that’s totally guaranteed by the person taking out the second mortgage.”
Robb: Yeah, so there’s a lot of that.
Sandi: I’m just laughing at Jackson. He’s just about to explode.
Jackson: Oh, second mortgages, wow. Yeah, we get approached all the time as mortgage brokers to invest in MICs (mortgage investments corps). Yeah, they just paint the picture like “This is the world’s best thing ever. No problems. Nobody ever loses money.” And I can tell you from experience, how many people call and say, “I’m foreclosing on both my mortgages.” It’s just like whoa, no, avoid second mortgages! But man, do they paint the nice pictures.
Robb: Yeah, “I’ve done it twice, and no one’s ever defaulted on me. So you’re fine.” Jackson: Nailed it. Well there we go. I think that’s it. Anybody else have anything to add?
Robb: No parting wisdom.
Jackson: Are we going to sum this up? Do we trust online advice? Do we not trust online advice?
Robb: I like your point. You should find someone you do trust, or find a source or a couple that you do, if you are looking to bounce ideas off of. Find those experts that you agree with their line of thinking. But even that could be dangerous too. You know, you don’t want to just go there for confirmation of what you think. You want to get a couple of different opinions. So I like what Sandi said at the start, that it’s a starting point. Don’t just go hit‐and‐run advice looking for some kind of quick fit, because you’re not going find it in the reddit or Canadian Money Forum, or whatever. Just do a lot of research and make your own decisions.
John: Yeah, that’s absolutely right. You’ve got to start with research yourself. You’ve got to put the work in yourself. Because when you go these forums, all you can present is that stick figure. So you’ve got to make sure yourself that that stick figure is accurate and that you can deal with the information that you get based on that stick figure, and that you’re going to have to vet it yourself. Because a lot of it’s really good. I’m really impressed and really touched that a lot of people who are knowledgeable, put the time in. But there is also a lot of bad advice, so unfortunately it’s buyer beware, although it’s free advice. Or reader beware of what’s out there. It’s up to you to do the homework.
Jackson: I think that’s good. I like it. Sandi, you’ve got to say something intelligent and then I’m going to stop the broadcast.
Sandi: We’ll be waiting a while. [laughs]
Jackson: All right. Good-bye.