TikTik Financial Advice to Ignore

• Author: Jessica Williams
• Posted: 2024-09-22

There is no doubt that personal finance is becoming democratized. In the past, you bought books from the recognized experts in the field. These days, everyone seems to be an expert, offering you tips wherever you turn. The problem is that many of these "tips" are just plain falsehoods. Listening to them could get you into serious financial trouble. Nowhere is this more apparent than the "personal finance experts" who are offering up their advice on TikTok. Here are some of the greatest personal finance myths that spread on TikTok and why you should not listen to them.

You Can Get Rich By Following What Rich People Do

Many people simply think that the best way to riches is to copy the investments of the top hedge funds and other rich people. However, this relies on a misunderstanding because you cannot fully track how rich people invest. Hedge funds do file quarterly reports with the SEC, but it is very hard to detect exactly what they are doing. By the time that they file the report, their activity may be stale, and you could have missed the trade by months. Just because it is on paper and filed as a report does not mean that it is clear investment advice. The reality is that tracking the activity of well-heeled investors is not as easy as it looks.

Pay More than Your Monthly Mortgage Payment

This is actually the last thing that you would want to do with any extra money that you have each month. There is some debt that actually makes sense to have. Mortgages come at very low interest rates, and your interest is tax-deductible. If anything, you should be taking extra money and using it to pay off debts with higher interest rates, such as credit cards and personal lines of credit. Alternatively, you could invest the money in the stock market and earn a higher rate of return than the interest on the debt. The same thing applies to other debts with lower interest rates, including student loan payments. Not all debt needs to be paid off early.

Put Your Money in Call Options

Many people tell you to just invest in call options of stocks like Tesla and Apple and just let the money roll into your account. This is a fundamental misunderstanding of how call options work, and it could result in you draining your investment account. Call options are not like stocks. At a certain point, they could go to zero and expire worthless. Continuously buying call options on volatile stocks is more like gambling than investing. If anything, options should be used to increase your investment returns or to hedge your portfolio. They should not be used to speculate. If you insist on doing that, limit this to part of your portfolio. Otherwise, the results will be disastrous.

Short the Whole Stock Market

You can just ask the hedge funds that shorted Gamestop how this worked out for them. You need to be very careful in shorting the market because you have unlimited exposure to the upside. You can short some stocks to have a balanced exposure, but you need to do it with great care. The stock market can be manipulated by investors, as we have seen repeatedly. As a short seller, you can get hammered. Going entirely short is a simplistic statement that represents a simplistic and uninformed viewpoint of investing.

Investing $300 a Month Can Help You Retire at 45

The best way to invest is by putting away a little bit at a time. However, creating the expectation that investing a little each month will lead to riches and early retirement is just plain wrong. It is a simplistic statement that causes people to misunderstand the basic fundamentals of investing. People end up putting this money into the most speculative stocks, which is basically the same as going to a casino and putting your money on to red or black. When you invest, you should swear off any expectation of riches. Instead, you should adopt the mindset that your money will slowly grow for when you may need it in the future. You are looking to build household wealth as opposed to trying to get rich quickly.

You can consider financial advice that you get on TikTok for what it is worth; next to nothing. These are people who are trying to grab your eyeballs by making outlandish statements and nothing more.