NOT LONG AGO, I ran into my friend Martin, who works as a cardiologist at a local hospital. In the course of our conversation, I commented on the construction equipment outside his facility and asked what they were building.
His answer: “Building? No, they’re actually un-building.”
He explained that recently his hospital had been sold and the new owner was a for-profit company. As part of the transition, the new owner had evaluated the hospital’s facilities and discovered that a group of older buildings was largely unused. Unlike the prior owner, which was a nonprofit, the new owner was subject to real estate taxes, saw no sense in paying taxes on empty buildings—and determined that it would be worth the expense to take them down.
This got me thinking about how tricky it can be to make financial decisions. In this case, two different owners of exactly the same buildings came to opposite conclusions simply because of a difference in their tax status. Moreover, in addition to tax considerations, there are a thousand other ways in which each of us is unique: our age, health, children, lifestyle and much more. Each of these factors must be considered when making financial decisions. On top of this, with so much information coming at us—from radio, TV, podcasts, blogs and more—it can feel more difficult than ever to make sense of it all.
As the hospital example illustrates, what works for one person may not work for the next. How do you figure out what financial advice will work for you? Whenever you come across financial information and are wondering what to make of it, try asking yourself these three questions:
1. Does this information actually matter? On my shelf, I have a book titled Guide to the 50 Economic Indicators That Really Matter. This book is only lightly read and probably ought to be thrown away, since most of the 50 indicators really don’t matter. For ordinary people, there is very little relevance, and debatable predictive value, in obscure statistics like the Baltic Dry Index or the Tankan Survey.
I would put recent concerns about trade tariffs into the same category. Yes, this issue matters, but the impact is far from certain. If you have a diversified portfolio and take a long-term view, it really shouldn’t cause you to lose sleep. As William Bruce Cameron (and not Albert Einstein) once said, “not everything that can be counted counts.”
2. Is the information accurate? In recent years, there’s been growing concern in academic circles about a phenomenon called the “replication crisis.” The worry is that it’s very difficult to reproduce the results from a large portion of studies published in academic journals. While scholars are still working to understand this, I view it as yet another reminder that you should think critically about everything you read. Before making financial decisions, always evaluate the credibility and the track record of the source, and always look for counter-arguments.
3. Is the information universally applicable? Some advice does indeed fall into this category: Avoid credit card debt, for example, and avoid high-cost investments like annuities. But some advice will apply only in specific cases—to people in certain tax brackets or, alternatively, to people who hold specific investments, such as high-yield bonds or a concentrated position in a particular stock.
The upshot: As you come across financial advice, always ask yourself whether it is generally applicable. If not, ask yourself whether it applies to you. There are lots of good ideas out there. Just be sure that any given idea will be good for you.
Adam M. Grossman’s previous blogs include Nothing to Chance, In the Cards and You—But Better. Adam is the founder of Mayport Wealth Management, a fixed-fee financial planning firm in Boston. He’s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter @AdamMGrossman.