Seven Personal Finance Terms That Need to Go Away
The financial services industry loves jargon. Financial advisors love jargon too. They think it makes them seem smart. Too many use it to intimidate clients. If you're going to use jargon, explain it or stop using it.
But there's more to financial jargon than that. Jargon is also used to make sales. Worst of all, many of the folks using the terms I'm going to list below claim to promote financial literacy. That's right. They might not be trying to sell you insurance policies or investment management, but... If they're not, good chance they're selling books, courses, or website clicks.
Generational Wealth
You have to [do this] if you want to build generational wealth! Seriously, I know there's a book called, "Die With Zero," but how many folks want to leave zero to their kids? In the end, wealth is wealth, whether for you or the next generation. We see this term used a lot by cash value or, “permanent,” life insurance salesmen.
Legacy
Build your legacy by [doing this]! This is more permanent life insurance sales lingo, & maybe it might help build a legacy for the salesperson. How do you build a legacy anyway? Hint: it's not with money. If someone's trying to convince you it is, run.
Passive Income
Create passive income so you don't have to work! Spoiler alert: passive income is the perpetual motion machine of personal finance. There is no such thing. The types of work required for the income may change, but no one pays you for nothing if you're building it yourself.
Tax Loss Harvesting
"Do you do tax loss harvesting?" I get asked this question by prospective clients way too often. It is based on a real securities sale or portfolio rebalancing strategy. If you need to sell to raise cash or rebalance your portfolio, of course you should optimize for capital gains tax. The problem arises when someone becomes convinced it's a strategy to outperform the market. If a financial advisor is selling their tax loss harvesting portfolio management skills... Remember, you can only, "tax loss harvest" big gains by having big losses to cancel them out. Tell the advisor you want a simple, low cost ETF portfolio & ask them where is the harvest coming from then?
Lifetime Income
Lifetime income completes the trifecta of insurance product sales gobbledygook. Who here is hoping for 95% of lifetime income? Anyone targeting running out of money before they die? I'll stop you & say, "no." The, "lifetime income," hook is usually used to sell annuities. Can annuities be part of some people's financial plans? Yes. But selling them because people think they're a secret way to not run out of money? Nope. It's a secret way for the salesman to earn a big commission based on fear.
Stocks Going "On Sale"
"The market's down? Great! That means stocks are on sale. Back up the truck!" Does achieving historical stock market returns require buying through ups and downs? Yes, a thousand times yes. Because the alternative isn't selling at the top and buying only at the bottoms. The alternative means missing out on all the returns the market provides. At the same time, this is zero reason to cheer for down markets, because they can last longer than you want. And who wouldn't prefer it if stocks never lost value? Wouldn't that be even better than buying ups and downs?
This Is How The Rich Do It
or
The Rich Don't Want You To Know This
I don't know how to break this to you, but, "the rich," aren't thinking about you. The rich don't care what you don't know about money. They aren't busy being their own bank, keeping it secret from you. They're not hiding the Roth IRA from you. The real secret is that it's the person claiming to reveal what, "the rich do," who wants your money. And the final spoiler: the rich make the same financial mistakes that you do.
