Investment Advertisements are Predicting a Crash

I see a lot of signs around me that we are heading for a new crash. Things like private lease cars, consumer credit, and investment advertisements are alarming me.

Everyone Should be Investing

Earlier this year I wrote a piece (in Dutch) on how the ads that everyone should start investing are indicating we’ve reached the top. With a stock market that has been rising for years, banks and investment brokers are taking advantage. Advertisement on TV, radio, and print are pushing the ordinary consumer to start investing their money.

The problem is, nobody actually invests in stocks outside of their retirement accounts (of which they don’t know how they work). I mean, besides the rich people and some FIRE geeks such as myself of course. I don’t know anybody outside of the FIRE community who actually invests. And yet banks and brokers keep advertising “investing doesn’t have to be complicated“.

But investing is not for everyone. I really think it could benefit anyone, but a lot of people are just not up for it. They think investing is stupid, or they are simply afraid.

With banks and other companies now advertising how easy it is to invest, more people might enter the space. That could be a good thing, but when you are uneducated, you might make some costly mistakes.

Costs of Investing

One mistake the banks are trying to let you make, is inducing too much costs. These costs are profit to the banks and brokers, but are killing your returns.

Of course, investing does have costs. The stock exchange has to make money. So are the holding companies and brokers. But the costs shouldn’t be too high.

When I invest through my low cost internet broker I pay no transaction fees when I buy ETFs from their core selection. For exchange connectivity I only pay 2.50 EUR per year!

On top of these costs (that I pay the broker) the funds I invest in incur costs. These costs are called the total expense ratio or TER. The ETFs I use have TERs of 0.25% and 0.35%. These are not the lowest you can find on the market but they are pretty damn low.

I used to invest in even cheaper funds, but EU legislation makes it impossible to buy them anymore.

What Do These Banks Charge?

Most investment services are advertised to your average Joe. He or she doesn’t know a thing about investing, but does want to generate better returns that they can get in their savings account.

So the banks offer them services in which you don’t need to know what you’re doing, everything is done for you. Actually this means that they are putting your money in actively managed mutual funds, that underperform the market and have TERs as high as 1.5%.

A difference of 1% in the total expense ratio can be a difference of hundreds of thousands of euros!

How to Lower Investment Fees

Please don’t fall for this crap and invest in low cost broad market ETFs. You can take a look here at my strategy as an example, or just read something about investing in general. It never hurts to educate!

How Are Investment Advertisements Predicting a Crash?

When everyone starts to invest, that means the hype is at its peak. People have seen a decade of great returns while the interest rate on savings accounts has been practically zero.

It’s understandable that they want to chase better returns. But they do so through their emotions, not their reasoning. And that’s what’s bothering me. People should invest all the time. Not after the market has had a great run-up.

When the market will come down, not if, when, shit will hit the fan for all these retail investors in investment products that are too expensive. They will cut their losses, pull their money out, and tell the world “I tried investing once, it doesn’t work.”

For now, I will not do anything against this. Yes I’m predicting something here. Actually, the crash if we can call it one, already happened a month ago.

Are my predictions worth anything? Of course not. I’m just a consultant trying to make reasonable assumptions. That’s my job. But that doesn’t mean that my story here will turn out to be true. Maybe the crash will not come. Maybe the investment advertisements will die out. Maybe every European will start reading Fire The Boss (be right back, upping my hosting contract!) and start to invest in proper funds.

What do you guys think about the recent hype around investing?

5 thoughts on “Investment Advertisements are Predicting a Crash”

  1. We’ve found that another way of reducing the costs for an ETF is to simply create your own. In the US you can get brokerage accounts that don’t charge you anything when you buy or sell shares (e.g. Firstrade, we don’t get compensated for mentioning them). We created an equal-weight portfolio of a mix of dividend aristocrats and technology companies with currently 35 positions. We intend to increase this to between 60 to 80 positions. Risk/return is where we want it to be. Total fees: 0%

    • Interesting strategy there Matt! I do agree with you that creating your own portfolio is cheaper looking at management fees. However, I believe that this only works at really large volumes (tens of millions invested, probably more). The reasons are plenty: to get a decent diversification you have to have a lot of positions. I consider 100 positions way to little. My current portfolio is a couple thousand positions and that’s just from two equity ETFs.
      Also, if you want to maintain proper weighting within your portfolio you might have to do a lot of buying and selling to rebalance. Some brokers let you do this for free, but not all of them do. Then, self managing costs a lot of time. Time that I can use to earn money, which is potentially more than the 0.25% TER I currently pay.

      I’m wondering why you chose a mix of dividend and technology stock. Would you mind elaborating that choice a bit?

      Thanks for stopping by!

  2. Great article, couldn’t agree more with everything you are saying. Generally, people are financially illiterate, just those really interested into it accomplish some understanding. for instance, Bitcoin reflects human behavior. 2017 everyone was in, even those that never invested a penny. My girlfriend, who follows blogs about health, received emails inviting her to buy bitcoins and get rich! Seriously? Sadly, a lot of people believed it and now some are totally broke (luckily I wasn’t one of them, but I could have!). It is exactly as Rockefeller said: when you see that everyone is talking and buying something they know nothing about, SELL, a crash is coming (probably he used a different words but the idea remains the same).

    • Another variant on this is Buffet’s “be fearful when others are greedy and greedy when others are fearful”.

      I prefer to be greedy all the time. Buy buy buy every month!

  3. Totally agree, everywhere I hear/see investment advertising. It will be very alarming when everyone at a family party is talking about stock markets (just like crypto).