Recently, Yahoo Finance covered an inspiring story about a 27 year old financial writer and blogger who had already eclipsed one million dollars in net worth. That blogger gave all the right advice - invest early, sacrifice in the present, live below your means, and (if you can) reach for those high headline numbers of savings rates - 50, 60, or 70%.
Of course, there were a few alleged problems with the backstory - a bit of a problem with "the truth", and more problems with "the whole truth". The major revelation from the Yahoo correction? "75%-80% of his wealth consists of an inheritance that was left to him by his parents, who died several years ago".
All that said, Mr. Ivanov is, as far as we can tell, still a millionaire and certainly a very good steward of his late parents' inheritance. If you followed all of his advice you'd almost be guaranteed to be in good shape in your own personal finances - the message he preached was a good one, even if it wasn't the exact blueprint he himself followed.
One very public example aside, what does this experience say, or even suggest, about your favorite financial writer?
The Internet's Trust Problem: Beyond a Single Financial Writer
The internet has a trust problem - but, really, is it all different than the trust deficit you have to overcome in real, everyday, face to face life?
When you meet a new person, he or she has every opportunity to lie directly to your face... with the added advantage of your belief by default because you "got to look him in the eyes".
Seriously, though, the internet gives just as many opportunities for a person to lie; the only difference is the opportunity to interact with a lot more individuals than typical people can put themselves in contact with at a time. While only the already famous and powerful tend to attract large live audiences, the internet has the ability to make a writer go viral from a single post or image!
Additionally, since there isn't enough time to explain one's background to each reader, there is a tendency for people online to "fake it until you make it" - that is, claim experience and positions that they believe they will once attain, even if they haven't yet.
It was just a few weeks back that we wrote an interesting post about the tendency for many people to lie online. I'll repeat some of the juicy information - men tend to lie about their heights and their incomes in dating profiles. Just like the under-aged fake-ID holder who claims to be 21, it's the round and important numbers that have the most "stat frauding".
While that may mean everyone close (but below) rounds up to 6'0" tall and $100,000 in income, it means something different entirely in the financial sphere. Here, everyone with a blog or a website has a perfect track record of winning stock trades, clears $100,000 in online income, has 10,000 pageviews a day, 1,000 subscribers, $1,000,000 in net worth, and has a beautifully round savings rate - not lower than 30%, of course, but 50%/60% or 70%.
Tack onto that:
- Shady private advertisements & links to services that a financial writer would never use herself, let alone recommend to a real life friend.
- Reviews of services (often not even used by the author!) due to the presence of a referral program.
- Credit card recommendations - conveniently for the cards with the largest referral bonuses.
- Articles about things outside of the experience of the author - (My pet peeve: Forex and Binary Options posts on debt blogs)
How Do You Know Who to Trust?
Actually, in a way, this article is a warning that you can't exactly know who to trust. The Warren Buffett quote on reputation - "It takes 20 years to build a reputation and five minutes to ruin it." comes up often in situations like this, although reputation building tends to come a bit quicker in this day and age. What we're talking about here is integrity - how do you know who is giving good advice? How do you know who has a backstory you can trust? Who is being honest?
I wish I knew.
The best you can do is to pay attention to the details when you follow a new author or blogger. Does he or she play fast and loose with the numbers? Does he or she follow given advice? Does he or she make progress over time, if they are reaching for a goal? Does he or she hide important aspects that would explain a backstory as given? Does he or she ever make mistakes?
Problems with one aspect aren't necessarily revealing of lying, but they are a clue - if you can tick off a number of the above, you're probably looking at someone out to gain some quick popularity and some advertising revenue.
But, even with all of that said, the financial realm - both the blogosphere and the writers on investment and financial sites - tend to be pretty above board and we've witnessed relatively few incidents of outright lying and cheating. While incidents like this 27 year old remind us not to trust everything blindly, hopefully it also doesn't turn us completely cynical - the truth is, the majority of people are honest and wouldn't even think about making up a back-story or giving bad advice.
But, it happens. As it pretty obvious from this story.
If you have any tips you can share to avoid being duped, please leave them. How do you know your favorite financial writer or blogger (or anyone on the internet, actually) is telling the truth? Start with us: how do you know you can trust DQYDJ?