How to Protect Your American Dream From Bad Financial Advice

A financial adviser works with a skeptical-looking couple.

(Image credit: Getty Images)

There are not many financial advice authors who come right out and tell readers, “You have probably been fed investment propaganda that makes stockbrokers a lot of money in commissions while taking it out of your pocket.”

But that is exactly what Mark Matson does. He is the founder and CEO of Matson Money and the author of Experiencing the American Dream: How to Invest Your Time, Energy and Money to Create an Extraordinary Life. His company was one of the first registered investment advisers to reject a commissions-based model, which Matson viewed as “structurally incompatible with investors’ interests.”

“Our mission,” Matson says, “is to help protect your hard-earned money from speculating and gambling through education and training.” Matson discusses road blocks that prevent so many people from being able to experience the greatness of America: “A potential to reach your goals, whatever they may be, that is the heart and soul of the American Dream.”

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A theme repeated in this inspiring and practical book underscores, “Making money is important, but unless you live your life with purpose, thinking of others, being there to help, and have a sense of generosity, no amount of money will make you happy.”

Not only does Matson help to steer us away from costly financial traps, but he provides a road map to living a better life.

We discussed three red flags that can lead to financial insecurity.

1. Not talking about money as a family, which creates vulnerability

“Surprisingly,” Matson observes, “so many people grow up in an environment where money is taboo, not to be discussed. We call that the ‘no-talk rule.’ This attitude stands in the way of attaining what the American Dream offers and creates a vulnerability, getting trapped into speculating and gambling, mentally living in a world of scarcity, because money has a negative connotation.”

2. Getting bad advice: Stock picking, market timing, trusting a guru

Matson shares the destructive advice given to him by the president of a brokerage in his first job as a financial adviser: “Try to pick the right stocks that are going to make a lot of money. Do market timing — getting in and out of the market at the right time. And if you’re not good at it, find somebody else who has a good track record and trust them with your client’s money.”

Now, how often do you find a financial adviser who admits they were wrong? Matson does: “I did all those things, and it was an absolute disaster! We didn’t know what the best stocks were in advance, what the market was going to do, and trusting someone that had a good 20-year track record had zero correlation to doing well in the future. All of this is gambling, trying to predict which stocks are going to be best in the future, no matter who you trust your money to. These are dream-killing events.”

3. Thinking commission-driven brokers care about you

“‘Look, this isn’t working,’” he says he told his employer. “‘Our clients will never reach their financial goals if we keep doing this with their money.’”

And the response? “‘If something you sell them doesn’t work, just sell them something else. If you lose them as a client, just sell to someone else and earn more commissions.’”

Two parts to a prudent portfolio: Investing principles and emotional fortitude

So, how do we get away from commission-driven investing that can cost us dearly?

“The first step is understanding the principles of academic investing, establishing your portfolio and having the emotional fortitude to stay with it and remain disciplined over a 30- to 40-year time frame,” Matson notes. “But the mental side — emotions — is critical and where people go wrong, even if they have a good model. Our instincts lead us to panic, sell when things are down and buy when they are up — the exact opposite of what we should be doing. And then there are many dangerous, subconscious biases. For example, the ‘herding bias’ that is great for zebras but bad for investors.”

He explains how that becomes so destructive: “Herding is disastrous for investors. If everybody is doing something, we feel safe if we do that, too. ‘Oh my gosh, everybody’s getting rich on bitcoin. It is so easy. I don’t want to miss out, so I will buy bitcoin.’”

Another example: “The market goes down, and everyone sells, keeping their money in cash, so we feel comfortable doing that, too. And the list goes on. There are over 185 biases people have which can get in the way of sound investing.”

Beware of toxic investments

Matson wants readers to understand the Bigger Fool Theory, or a sucker born every minute. “Bitcoin is the perfect example of total hype, as there is nothing there,” he observes.

He also points out the enormous risk of keeping all your retirement funds in your employer’s stock, known as having a concentrated stock position. “Think of Enron. Think of banks that fail.”

Experiencing the American Dream is a gift to its readers, as is its author.

Dennis Beaver practices law in Bakersfield, Calif., and welcomes comments and questions from readers, which may be faxed to (661) 323-7993, or e-mailed to Lagombeaver1@gmail.com. And be sure to visit dennisbeaver.com.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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After attending Loyola University School of Law, H. Dennis Beaver joined California's Kern County District Attorney's Office, where he established a Consumer Fraud section. He is in the general practice of law and writes a syndicated newspaper column, You and the Law. Through his column, he offers readers in need of down-to-earth advice his help free of charge. "I know it sounds corny, but I just love to be able to use my education and experience to help, simply to help. When a reader contacts me, it is a gift."