Giving Advice when Asked

[LAJPP]

So guys, I have been following the MMM approach to investing for about 2 years now, ever since coming across the site. I make it a point to avoid any discussion on the topic, but I've always had a reputation for being responsible among friends. Recently, a friend asked how to know how much to save. I told him about the 4% rule and assuming a market return of 7% and said he could do the math and be more or less conservative with the numbers as he saw fit. Another friend was there and just would not accept this kind of thinking... "You can't assume you'll get 7%... When the market crashes, you'll start over... You're irrationally confident in the market..." I really have no idea where to go from there in the discussion. In some sense, he's right. I have no answer for some kind of market-never-recovers scenario. I chose to abort the conversation after coming off very standoffish since from my perspective, he's on shaky ground. I want my friends to be responsible and am happy to share if asked (especially since we are late-20s to early-30s and have time on our side, imo), but I don't know how to positively respond to this kind of critique.

Have you run into this? Do you have any answers? Advice? Is there any point in worrying about friends?

[mintleaf]

You did the right thing to end the conversation. Whenever someone bristles like that, it's because you're challenging their fundamental view of the world, and they're feeling threatened. Maybe check in with the first (interested) friend later, one on one, to see if he wants to continue the conversation.

[Dancin'Dog]

If you have "The Simple Path to Wealth" you can mention it & offer to lend it to them. Later you can discuss the book. 

[LAJPP]

Yeah I like both of those suggestions. I think I just have to be more careful when discussing around people who didn't ask. I love 'The Simple Path to Wealth' -- it makes a lot of sense to me. I like the idea of just giving no more than what people ask, staying one-on-one, and just letting them come back later if interested. Thanks.

[Mr. Frugal Pharmacist]

I would point out that I have over 100 years of market history to work with where the market has consistently gone up. The Great Depression, Black Monday, the Dot Com bust, The Great Recession. All of these events seemed like the end and yet the US economy found a way to keep on chugging along.

If your friend is still skeptical then throw the ball back in his court. Ask him what his asset allocation is. Then drop the mic.

[shinn497]

So guys, I have been following the MMM approach to investing for about 2 years now, ever since coming across the site. I make it a point to avoid any discussion on the topic, but I've always had a reputation for being responsible among friends. Recently, a friend asked how to know how much to save. I told him about the 4% rule and assuming a market return of 7% and said he could do the math and be more or less conservative with the numbers as he saw fit. Another friend was there and just would not accept this kind of thinking... "You can't assume you'll get 7%... When the market crashes, you'll start over... You're irrationally confident in the market..." I really have no idea where to go from there in the discussion. In some sense, he's right. I have no answer for some kind of market-never-recovers scenario. I chose to abort the conversation after coming off very standoffish since from my perspective, he's on shaky ground. I want my friends to be responsible and am happy to share if asked (especially since we are late-20s to early-30s and have time on our side, imo), but I don't know how to positively respond to this kind of critique.

Have you run into this? Do you have any answers? Advice? Is there any point in worrying about friends?

I think I'm the opposite. I am a big blabbermouth about finance and am trying to shut up about it now.

With that said. I always say that "If the market truly tanks you should have been investing in water, fuel, and bullets instead of stocks." The notion is that a true decline would mean that society would be completely different and is a far cry than what is predicted in news.

With that said. Peoples' confidence in the market or lack of is emotional. You really can't rationalize. So if I were to truly advise someone I would only do it to someone with an open heart.

[LAJPP]

I appreciate the replies. I think you're each hitting on a piece of what I would like to have said if I had been quick-witted and patient enough. Instead, I got irritated and had to stop. I think what can be totally baffling is that he (and another friend who I know is financially reckless) are otherwise very thoughtful people.

I believe that I am going to stick to not trying to convince anyone. To me, the arguments are fairly obvious. In the last couple of days, I have revisited interviews with JL Collins and found it even more clear and simple than I did the first time (have not really reconsidered my strategy over the last 1.5 years or so). In fact, it served as a little boost. However, as a lot of these writers point out, most people don't like these ideas. And that's ok! I think I was probably feeling threatened myself and wanted to convince him that I was right and he was wrong. Better to just roll along, do my thing, and hope I'm right. No need to argue.

[MustacheAndaHalf]

Even if you're quiet about it, I think you should know where your bristling friend went wrong.  A market crash doesn't return -100%.  You do not start over.  Your investments drop in value, and most of the time within a few years, most of the market value has returned.

The exceptions are very rare, but too vivid.  People overestimate the importance of the great depression and Japan's economic stagnation.  Because they are so easy to remember, they tend to seem more likely.  They could happen, but not with the probabilities people give them.

A more likely crash is a big loss, followed by a great time to invest, followed by a recovery.  I highly encourage reading about stock market history (like "A Random Walk Down Wall Street") so you can at least have some idea how a crash can play out.  Although the next crash could always be different, most crashes and recoveries happen over the course of a few years.