Most important points
Vivian Tu recently shared four popular pieces of advice not to follow. She says to avoid day trading, as most day traders end up losing money. She also recommended against following some common financial tips, including avoiding all debt and cutting back on minor expenses.
A lot of financial advice is doing the rounds on social media, and unfortunately it’s not all good advice. While there are reliable financial influencers, there are also plenty who share terrible ideas in hopes of gaining more followers and selling products.
Wall Street expert Vivian Tu is one of the reliable ones, and she shares high-quality personalized financial advice on her channel, Your Rich BFF. She recently published a video with four bad pieces of advice about money that she says you shouldn’t listen to.
1. Day trading
Day trading is when you buy and sell stocks on a daily basis. This is a popular get-rich-quick scheme and there are tons of social media scammers out there pretending it’s a great way to make money. They tell you how much they supposedly made, pose next to rented Lamborghinis and explain that all you need to do is buy their job to make the big bucks.
Research has shown that day trading is not, in fact, a great way to make money. Tu says in her video that 85% of day traders lose money in the long run, and that’s probably the conservative estimate. That can go up to 95%. Either way, those are bad odds. You are much better off investing for the long term, which has proven to be a much safer way to build wealth.
2. Avoid all debt
Debt often gets a bad reputation. Some people hate debt and think you should avoid it at all costs. Tu disagrees, saying debt is a useful tool, using mortgage loans as an example. Her logic is that if you can borrow money for less interest than you can earn investing it, you have an edge.
This makes sense, and Tu also rightly points out that rich people always use debt as a tool. There is no reason to be afraid of debt or rush to pay off low-interest debt, such as your mortgage, as quickly as possible. However, this does not mean that you should have an arrogant attitude towards debt. You still don’t want to overpay or take on high-interest debt, such as credit card debt, if you can avoid it.
3. Cut back on small expenses
For decades, out-of-touch finance gurus have spent far too much time talking about cutting back on small expenses. As Tu puts it, “Starbucks isn’t the reason you can’t afford a house.”
Instead of micromanaging every dollar you spend, focus on the things that make a big impact. Think of consistent savings and investments and regularly looking for opportunities to increase your income. If you invest 10% to 15% of your income, you can accumulate hundreds of thousands or even millions of dollars by the time you retire. If you can handle that, it really doesn’t matter if you splurge and treat yourself from time to time.
4. Cancel old credit cards
Tu’s final piece of advice is not to close your oldest credit cards. She says this will shorten your credit history and reduce your credit score. If you have a card you don’t want that costs you an annual fee, Tu recommends downgrading the credit card, which you can do by calling the card issuer.
It’s worth noting that Tu’s advice here isn’t entirely correct. When you close a credit card, it stays on your credit report for 10 years, so your credit history isn’t shortened anytime soon. During that period, it can still increase your average credit history and therefore your credit score. However, closing a card does mean that you lose the credit limit. That can affect another factor, your credit utilization ratio, if you carry credit card balances.
In general, it’s good to keep your credit cards open, especially your oldest cards. But it’s not an absolute must. Even if your score drops after closing a card, it will bounce back if you continue to manage your credit well.
With so much money advice out there, it’s important to separate the good from the bad. The four things Tu mentioned are all tips that you can safely ignore.
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