4 Cult-Like Investing Communities
Are you open-minded when it comes to your money philosophy?
There are communities around money sprouting up all over the internet.
This is a very good thing. The hard part about managing money is staying consistent in the very long run. Having a community of like-minded and supportive people traveling the same road can help you stay on track.
But sometimes, online communities become an echo chamber where a simple narrative is adopted, repeated like a mantra until members of the community stop thinking critically and refuse to accept evidence contrary to the community’s belief.
When we go all-in on a single idea around money, it can lead to trouble.
Here are what I have observed to be four “cult-like” investing communities. If you’re a member of one of these communities, I’m not judging you. I only encourage you to ask tough questions about the assumptions and beliefs in each of these communities.
#1 — Bitcoin Maximalists
There really couldn’t be any other money community to eclipse crypto on this list.
By definition, the crypto-community has to be extreme. They literally want to create their own definition of money. This is especially true for the so-called “Bitcoin maximalists.” Which, just as the name suggests, are a group of people that have an unwavering belief that the future of money is Bitcoin. Not cryptocurrency, but specifically, Bitcoin and nothing else.
The Bitcoin maximalists are likely the people online who are calling to “abolish the Fed!” and who are screaming about the impending collapse of society due to “endless money printing.” They have been screaming about inflation even when inflation was below 2% per year.
The tell-tale sign of a cult-like online community is that they stick to their talking points no matter what. They aren’t interested in questioning the assumptions their beliefs are built on. That’s when things can get dangerous with money.
Maybe crypto, or specifically Bitcoin, is the future of money…
… But then again, maybe it’s not?
Maybe Bitcoin isn’t Amazon; maybe it’s Pets.com.
#2 — Rich dad, Poor dad fans
I’ve been an editor of a personal finance publication for four years. I can’t tell you how many articles I’ve been forced to read that are parroting Robert Kiyosaki’s Rich-Dad, Poor-Dad.
Another tell-tale sign of a cult-like community is when they begin creating their own definitions of words that fit the narrative they’ve adopted.
I can always tell when a writer who submits a story is a Rich-Dad, Poor-Dad fan because they will tell readers that their house is not an asset because it doesn’t produce cash flow.
Do you know what else doesn’t produce cash flow? Bitcoin and gold (both of which hare Rich-Dad, Poor-Dad favorites.)
Here is the actual definition of an asset from Investopedia.
An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit.
Put simply, an asset is something you can exchange for money.
A house is an asset. It may not be a great asset. It may not be an asset that will help you reach financial freedom quickly, but it’s an asset.
#3 — Real estate investors
Just about everyone is obsessed with real estate.
We live in a society that glorifies real estate, which makes sense when you think about it.
People tend to invest in what they know. Most people don’t know anything about the stock market, but we all can understand on a basic level how real estate investors make money. Buy a property, and people pay you to live there. As long as the rent is greater than your expenses, you will make money.
I’m certainly not here to tell you not to invest in real estate because it can certainly be a great way to build wealth.
But, there is a persistent narrative online that everyone should invest in real estate.
That’s where I draw the line.
When you buy physical properties, you aren’t investing; you are running a business. Some people are suited to the business of real estate investing, but others are not. If you lack the skills and discipline required to run a real estate business, you should probably stay away.
Better yet, consider investing in real estate through Real Estate Investment Trusts (REITs.) REITs are stocks that invest in commercial real estate. Better than buying individual REITs is to buy a REIT ETF, which is a basket of REITs packaged into a single, passive investment.
Real estate is great, but you don’t have to buy and manage physical properties to get in on the action.
#4 — Dividend investors
Dividend investors are the group I see most often on “Money Twitter.”
There are accounts with hundreds of thousands of followers that are constantly flexing about how much dividend income they have.
Let me say right off the bat; I totally understand the appeal of dividend investing. If you have enough passive income from investments, you can live a life of financial freedom. My only issue with dividend investors is that they focus so intensely on dividends that they miss the big picture of investing.
The rational investor only cares about maximizing their total investment returns.
Total investment returns= Dividends + increase in share price ─ taxes & fees.
If your entire portfolio is made up of dividend stocks, you are probably not maximizing your total returns.
For starters, if you hold dividend stocks in a non-tax sheltered account, you have to pay taxes on your dividends, which lowers your total return. Part of the beauty of having stocks that increase in share price is that you control when you sell, which means you control when you pay taxes.
With some financial planning, you can minimize the taxes paid on capital gains.
When you invest in dividends, you have no control over your tax liability.
The company you invest in chooses how much of a dividend you receive. If you receive dividends in years when you earn a lot of money and are in a high tax bracket, you pay a lot of unnecessary taxes.
Also, by excluding stocks that don’t pay a dividend (or don’t fit into your definition of a consistent dividend payer), you are underdiversified as fewer and fewer stocks pay dividends.
In 1991, 71% of global stocks paid dividends.
By 2012, only 61% of global stocks paid dividends.
The list of stocks that don’t pay a dividend includes some of the best-performing stocks over the past decade, like Tesla and Amazon.
Here’s something dividend investors might want to keep in mind; selling $500 worth of shares creates the same income as $500 worth of dividends.
Be cautious but open-minded to new money philosophies
While I don’t plan on getting into crypto or stock picking any time soon, it is a goal of mine to be more open-minded about alternative investing strategies.
No matter how much data we have to back up our beliefs, it’s important to approach money and investing with an open mind and be ready to change our minds if presented with new and credible evidence.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.
I originally published this article on Medium, but it has been updated and republished on Substack as this will be the permanent home for all my best work.