The No. 1 advisor on the state of investing advice: ‘There is an amazing amount of silly beliefs’

Trader Talk

The No. 1 registered investment advisor in America is annoyed about the state of investment advice in this country.

“There is an amazing amount of silly beliefs and bad investment advice floating around,” Ric Edelman, founder and chairman of Edelman Financial Engines, told me during an interview at the New York Stock Exchange. Ric was interviewed as part of CNBC’s partnership with Acorns, “Invest in you. Ready. Set. Grow.”

Two silly investment beliefs:

1) Recession? What recession? “Forty percent of the U.S. population believe the U.S. is in a recession,” Edelman said. “This is the longest running bull market ever, inflation rate is at historic lows, employment rates at historic lows, interest rates at historic lows, and yet 40 percent of Americans think the economy stinks. It’s crazy.”

What’s going on? It’s the way people think: “If I’m out of work, the economy stinks. If my pay hasn’t gone up lately, if I can’t afford a house. It’s all about me.

But that mode of thinking is wrong: Edelman said he understands that many people have medical issues or other personal problems, but “If things stink in your life financially, maybe you should make some changes about how you’re managing your personal finances…To argue that the economy stinks and use that as a reason for, I don’t want to save, I don’t want to buy mutual funds, or invest in the markets, you’re just delusional. You’re kidding yourself.”

2) Bitcoin over the stock market? Seventeen percent would rather invest in bitcoin than the stock market.

“It tells you about the incredible lack of confidence. This bull market is the Rodney Dangerfield of Wall Street, it gets no respect. This stock market is the biggest bull market we have ever had, it’s the longest in history, and yet people are arguing they’d rather put the money in bitcoin, they’d rather put their money in cash or under the mattress. I don’t have a problem with bitcoin, but to say you’d rather have it than stocks? That’s just insane.”

Boomers versus millennials

Compared to baby boomers, millennials are jaded and less trustful, and it’s easy to understand why they feel that way: “Millennials came of age around 2000, just in time for 9/11, just in time for 2008, and they don’t have a lot of confidential in financial markets, they don’t have a lot of confidence in governments, and they certainly don’t have a lot of confidence in corporations.”

Still, millennials have watched the mistakes their baby boomer parents have made — particularly the lack of savings: “It’s causing them to make smarter financial decisions. Not just about how they spend versus save, but saying, I don’t think I want to splurge on a huge wedding, I don’t think I want to spend a lot of money on a wedding ring, I don’t think I want to buy a fancy car, they’re actually being more prudent.”

Compared to baby boomers at their age, millennials are:

1) Saving more

2) Not buying houses

3) Getting married later or not at all

4) Having kids later or not at all. Birth rates are coming down. “If you go back to the 1930s when Social Security was started, there was about 300 workers for every retiree. Today there are three.”

The “college scam”

Edelman is particularly peeved at colleges he says have done a poor job of preparing students for the real world — not to mention the cost:

a) Crushing debt. The average college graduate owes $30,000. “We now owe more to student loans than we do to credit cards: $1.6 trillion.”

b) Misplaced expectations. “The average graduate thinks they are going to earn $15,000 more than they actually are earning.” Average salary expected: $55,000. Actual salary: $40,000.

Whose fault is that — the colleges or the economy?

“It’s the fault of the colleges. Colleges are in the business of recruiting students to pay these high tuition rates. Colleges are creating college degrees without regard to the financial impact. Did you ever notice that no matter what degree you pursue in college your tuition is the same? Why is a school teacher student paying the same tuition as a biology student? The cost of labs is a lot higher than the cost of a school teacher yet the tuitions are the same.”

Legislation and technology need to come together to solve the crisis: states are offering free college tuition for community colleges. And corporations are helping: “You go to work for Starbucks, Disney, Chrysler Fiat, WalMart, they will pay for your college degree if you simply are an employee there. You don’t have to spend massive amounts of money to get that degree anymore.”

Advice to novice investors

To a 16-year old who wrote in and said he had just got his first paycheck and wanted to know what to do with it: “Spend some of it and enjoy it… but you need to save some for the future, long term goals whether it is buying a car, paying for college, buying a house, saving for retirement. And give some of it away. With the opportunity of money comes the obligation to support others less unfortunate.”

How can a young person invest? “Sites from everything to Acorns to online sites allow you to invest with remarkably small amounts of money, and it’s a terrific way to get started with relatively low risk and small amounts of capital.”

Find out more about CNBC’s partnership with Acorns and our financial literacy initiative, Invest in you. Ready. Set. Grow.

Ric Edelman’s book, The Truth About Money, is now in its fourth edition.

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.

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