Opinion: Finding surprisingly good financial advice on Reddit, from all places
Navneet Alang is a Toronto-based freelance tech culture columnist.
A few years ago, frustrated with the performance of her portfolio, my septuagenarian mother fired her big-bank financial adviser and handed me the keys to my parents’ modest nest egg.
Although I had some familiarity with the basics of investing, I still had questions. Were bonds still vital for retirees in an era of historically low interest rates? Was it better for Canadian dividend exchange-traded funds to be kept in a registered or non-registered account?
To try to master this new responsibility, I turned to what some might consider an unlikely source of advice: Reddit.
This name may evoke a raised eyebrow or two – as it probably should. The social news site has, over the years, housed a variety of questionable stuff, including bigoted and obscene content. Beyond the most extreme material, Reddit has also developed a reputation for fostering reckless investments. Last year, the Wall Street Bets forum was the driving force behind the stock market phenomenon that pushed AMC Entertainment, GameStop and other stocks to arguably unwarranted heights. Reddit hardly looks like a bastion of quiet rationality for the nervous investor.
But Reddit is organized into groups called sub-reddits, siled into an endless array of topics — science, coffee, politics, public transit, and so on. forever. These niches each develop their own culture and purpose, and in a “sub” called Personal Finance Canada, approximately 800,000 members turn to each other for advice on all things finance.
The surprising thing is that most of the advice in this sub is actually, well, good.
Personal Finance Canada is organized into individual messages, primarily questions about all things money: taxes, savings, investing and real estate. On each post, people can comment below. Some questions get a handful of answers, while others — often on ever-hot Canadian topics like real estate or tax burdens — can turn into conversations with hundreds of responses.
Publications there will often praise index investing using low-cost ETFs that many Canadians have already embraced. The conservative investing mantras – “time in market beats market beat” – are repeated often, and while other parts of Reddit hype crypto or encourage big play, Personal Finance Canada suggests picking a All-in-one ETF with a mix of stocks and bonds that’s right for you.
And while informal money advice always comes with risks, Reddit’s Personal Finance Canada is part of a growing shift toward seeking information about one’s finances outside the confines of traditional institutions.
It’s a change that has accelerated since COVID-19, according to Nicole McKnight, public relations manager at Finder.com. Finder is a shopping comparison site that allows readers to compare things like credit cards, loans, or cell phone plans. Last year, the site surveyed some of its Canadian users regarding the use of a financial advisor and found a trend towards greater independence.
“The start of the pandemic was when retail investors really started doing their own research on investing,” says Ms. McKnight, “and we were surprised to see a lot of people walking away from their financial advisors” .
Ms. McKnight notes that about 7% of respondents planned to stop working with their financial advisor. And when you add those who thought about it, the number jumps to 18%.
This shift towards greater independence is, perhaps unsurprisingly, generational. One in three millennials surveyed planned to move away from professional advice, while just 11% of baby boomers said the same.
But as the pandemic and related trends in misinformation about masks and vaccines have made clear, when people start doing their own research, things can go wrong quickly.
Shiu-Yik Au is an Assistant Professor of Finance at the University of Manitoba. He started dating Reddit’s Personal Finance Canada last year when he asked why his bank had inexplicably closed his line of credit.
Given the location, one would expect the quality of the answers to be suspect – but that doesn’t always turn out to be true.
“People ask questions that are very obscure, like: ‘Do I count as a non-tax resident?’ says Mr. Au. He estimates that 10-20% of posters have real experience in their field “and are really good at it”.
All-in-one index ETFs are particularly popular on the subreddit, relatively new products like, for example, the Vanguard Balanced ETF Portfolio (VBAL), which has a 60/40 mix of global stocks and bonds. More often than not, questions about where to invest on Personal Finance Canada will be met with the suggestion to simply buy one of these new ETFs.
With far lower fees than mutual funds and fast, commission-free purchases available on newer platforms such as Wealthsimple or Questrade, it’s no surprise that people have decided to do it themselves – especially since, as many on Personal Finance Canada will insist, few fund managers actually beat the market.
But the randomness and volume of messages means that while advice on Personal Finance Canada can sometimes be surprisingly good, it can also be the opposite.
Reddit primarily biases men, and especially younger ones, and as young men they’re going to focus on finances that aren’t necessarily appropriate for a lot of people, Au says.
He points to the advice encouraging people to take advantage of the leverage with which to invest, due to the prolonged bull market over the past decade or so – a path that could be deeply wrong in the event of a sharp or prolonged downturn.
But as in other areas of finance such as tax returns, wills, real estate and more, younger generations feel that doing it yourself is better – and that more than that, professionals are simply not necessary.
Real estate agents and mutual fund advisers are particular targets of vitriol on Personal Finance Canada, Au says. “It’s almost irrational. They think these professionals are like leeches and don’t add any value.
This is, unsurprisingly, not a popular opinion among these professionals.
Christine Van Cauwenberghe is Head of Financial Planning at IG Wealth Management. She believes that while new platforms and sources of advice have their place, what’s missing when looking to amateurs is a more holistic view of one’s financial situation and future.
“We see that people are taking on a lot of extra risk, and that’s just because they’re investing without any advice,” says Ms Van Cauwenberghe.
“They also didn’t think about financial planning in general. So they know what their portfolio is worth at any given time, but they don’t know if they’re getting the right rate of return or saving at the right pace to meet their real goals.
What may therefore be missing on Reddit and other social media is advice that is both tailored to one’s needs and that sees finance holistically – not just as an investment or savings, but a set of needs and desires. goals in his life.
“This kind of personalized advice is very expensive,” says Au, “and if you’ve ever dealt with a real professional, you’ll see that it actually adds real value.”
Part of that value, Au says, is the knowledge that comes from experience. But part of that is just the unbiased input of a professional, especially during downturns when we ourselves might panic.
A strictly paying advisor – that is, an advisor who makes money from the advice they give, not the products they sell to you – can therefore be extremely helpful, and the more money you have money, the truer it becomes.
Still, for those of us with more modest means, you could do worse than the advice I found on Reddit. Pay off high-interest debt first. Have an emergency fund. Maximize your Tax-Free Savings Account, as well as your Registered Retirement Savings Plan, based on your income. And when it comes to investing, all-in-one ETFs that diversify your risk across geography, sector and asset class are the most reliable – and cheapest – way to take advantage of markets.
If you have questions about investing or money, the Personal Finance Canada subreddit is not a bad place to start. And even though the free advice is often worth about as much as it costs, my mother’s trust in me seems to have been well founded. At last check, my parents’ portfolio grew at a healthy pace – with no professional in sight.
Special for the Globe and Mail
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