I met with a family a few weeks ago for an introductory conversation. I’m always interested to learn about people’s history with Money. It’s an open-ended question that allows for a multitude of interesting answers.

This family explained that ~20 years ago, they received a significant lump sum payment. They reached out to a financial professional (a stock broker, e.g. Merrill Lynch or Morgan Stanley) in their town and entrusted him with their new-found money.

That advisor recommended a single “hot stock.” You probably know where this is going.

Within a couple months of the family’s initial deposit, the stock began to slip and slide. The family called their advisor for an update – What’s the plan? Are we staying the course? Should you do something different? No answer. Radio silence.

The slide turned into a nose-dive. The company lost ~80% of its value in a year, and this family lost 80% of their lump sum. HELLO?! What are you doing?! Why aren’t you answering us?!

The advisor gave a proverbial shrug, “This is the nature of Investing. I wish it was different, but the dice simply didn’t fall in your favor…”

Enter anger, sadness, and guilt. The family contacted a lawyer to inquire about possible litigation – surely this was an inappropriate investment recommendation?!

The attorney said, “Yeah, you might have a case. But if you lose the case, you’ll also lose even more money through attorneys’ fees. My recommendation: cut bait, eat your losses, and move on.”

And that’s what the family did.

The Long-Term Cost

Fast-forward 20 years to their living room. I’m listening to their story.

The anger, sadness, and guilt was still palpable. All those years later, the emotion of being misguided, or confused, or simply the feeling of losing a large sum of money – those emotions don’t simply fade away. The scar tissue is still there.

That’s one of the long-term costs of bad financial advice.

But then I inquired about how this family had recovered from the terrible experience. How had they pursued financial Growth in the interim decades?

The short answer: they lived frugally (a solid start) and plowed some money away into a bank account (another good step).

But they chose not to:

• Put any money away into Retirement accounts (401k, IRAs, 403bs, etc)
• Put any money away into a taxable brokerage account
• Invest in any way.

After all, they learned an incredibly salient lesson 20 years ago: investing (especially in anything to do with stocks) is a low-probability gamble! Why would they ever expose more of their hard-earned dollars to such an unfair casino?!

Doesn’t that make perfect sense?

That is, perhaps, the most painful of the long-term costs of bad financial advice. A single terrible experience can scar us. It can be the hot stove that scalds us, that teaches us, “Don’t ever do that again.”

So we don’t do it again. We sit with our money on the sidelines, far away from “the casino.”

Many of you know the same truth that I know: this family was exposed to an ugly side of the investing world and an ugly side of the financial advice world. They were not taught sound investing principles. Instead, their assets indeed were gambled away.

But investing – at least how I and many others approach it – is not gambling.

Fine, fine…investing isn’t gambling. If you say so, Jesse. But the truth is, this family cannot undo the past 20 years of sitting on the sidelines.

Yep. That’s the point of this article. Bad financial advice costs more than the “in the moment” loss of assets. The more significant cost is the fear-induced loss of opportunity that comes after.

If nothing else, this family’s story was a sober reminder for me to continue pushing out as much financial Education as I can. The antidote is education.

An investment in knowledge pays the best interest.

Thank you for reading! If you enjoyed this article, join 8500+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week. You can read past newsletters before signing up.

-Jesse

Want to learn more about The Best Interest’s back story? Read here.

Looking for a great personal Finance book, podcast, or other recommendation? Check out my favorites.

Was this post worth sharing? Click the buttons below to share!

Jesse Cramer Writer & Financial Planner

Jesse Cramer is the writer of The Best Interest blog, the voice behind The Best Interest Podcast, and works full-time as a fiduciary financial planner for Cobblestone Capital Advisors in Rochester, NY.