We have all been bombarded by ads online to buy stocks with huge potential only to blow up as well as the occasional horror stories where an elderly lost all their retirement savings to scams. The opportunity to earn huge amounts of returns over a short period of time is irresistibly lucrative and impossible to pass by.

But are these newsletters that promise to give so much yet seemingly ask for so little just selling pipe dreams or are they actually the hidden treasure troves waiting for the brave to take the plunge. Here, we explore just the multifaceted prospects of financial newsletters.

The Pros

The hype surrounding newsletters aren’t entirely baseless and it is true that many have benefited from this as opposed to those who have been scammed. Here’s why newsletters are sought-after by investors who spend thousands of dollars per year for subscriptions.

Research Has Value

The basic but most fundamental principle an analyst learns is the value of research. The rookie mistake most novice investors do is to get greedy too quickly and not look before they leap. The key to good investing is knowing more than the other investors around you.

To make sure that you are climbing the right tree, you need to be a step ahead of your competitors. However, it is understandable to be confused about where to start. This is where investment newsletters come into the picture. Here you will find experts who are paid to study, research, and understand companies with long term potential rather than one-time wonders.

Any financial advice should be cross-checked and verified by research and facts before you make any decisions to invest. The same applies to newsletters and brokers. Don’t aim blindly, make informed decisions. Sources like the StockReviewed blog helps investors to know which newsletters are worth the price and the know-how of the investment world.

They Save You From Brokers

Most investors are hard-earning, middle-income working people looking for an extra opportunity. They usually set aside a sizable portion of their savings for investment, for people like them, every penny is important.

These people are unaccustomed to the rules and tricks of investing and thus seek help from personal brokers and brokerage firms. Ultimately this entails their retirement savings being sneaked away right under their nose because of all the hidden fees.

The hidden fees include shareholder service fees, account maintenance fees, revenue sharing fees among other undisclosed ones. Despite the forced disclosure plans by the federal government in 2012, many companies still conceal details about fee distribution to their investors. To give you an estimate, the fees are structured in such a way so that, if you make 7% on your investments a year, you will lose 10% of that amount, and this vicious cycle goes on repeating every year.

That is why newsletters are a better and more viable option. Not only do they cost less per year compared to a brokerage firm, but also they don’t charge any hidden fees. All the information is provided to you unfiltered and you make your own decisions whether to invest or not.

Even premium subscriptions of newsletters charge less than brokers so you have the obvious choice when selecting your trustworthy source.

Misuse of Tools is the Real Cause of Danger

The fear of scams often turns away potential investors from seeking valuable advice from newsletters. The key is not to believe everything that you read and act accordingly. Measure your next move depending on your judgment of the situation.

Any resource is valuable and like all other tools, if used appropriately will glean favorable results. The bad reputation about free resources is mostly from half-heartedly reading articles, bad decisions, and incomplete research by inexperienced investors.

The Cons

Despite the many wonders claimed by newsletters and their subscriber testimonies, you should remember that each coin has two sides.

Newsletters Can Claim Anything and Yes, they lie

Appearances can be deceiving and this is very true when it comes to newsletters. Their professional outlook often fails to imply the fact that many are usually run from home. The lack of any college degree or a license and in addition not necessarily required to remove previous unfavorable track records and start afresh makes newsletters a lucrative business.

Furthermore, the SEC regulation doesn’t apply to them as they aren’t being paid. Therefore, they can get away with anything without consequences as being protected by the First Amendment.

Salesmen work by knowing exactly how to push a customer to behave the way they want, the same applies to newsletters. The fear of losing out on a lucrative opportunity piled with the greed of quick cash is a recipe for your retirement savings biting the dust.

They Vastly Overstated Probabilities of Beating the Market

Newsletters often underestimate risks and overestimate returns.

Even with positive results initially, many newsletters eventually discontinue as they fail to keep up with market trends. According to Mark Hulbert, publisher of Hulbert Financial Digest, who has been tracking financial newsletters sense 1979 quotes, “Assuming that advisors in the future will be no more successful than they were in the past, you have only a one-in-seven chance of beating the market when picking one at random,” Hulbert wrote. “This is perhaps the most important lesson to emerge from my 35 years of tracking advisors’ performance.”

This highlights how declining rates matter. From 1980 to 2015 only one out of 19 newsletters survived, and that was possible because it was ahead of the market when it was discontinued.

Losing Newsletters Hide Failures Easily

As mentioned before, you can easily restart and remove traces of losing tracks and start anew.

There have been cases where despite being a losing high-risk portfolio with a down rate of 17.5%, the publisher is sought-after at financial conferences.

The reason is that the allure of making money can be overwhelming enough for many investors to lower their guard and forget to be cautious.

Success is Not Eternal

Hulbert’s analysis revealed yet another interesting result regarding newsletters. The best performing newsletters do not necessarily remain at the top forever.

You can get an estimate of their performance by dividing the advice of newsletters into four separate quarters and by observing the return for the next 3-years. If you calculated that by chance, 25% or even higher (if they had persistence) of the top newsletters would remain in the top quartile for the next three years, you could be wrong.

In reality, only 15% of the newsletters of the top quartile for the next three years remained consistent. On the contrary, 33% of the bottom quartile newsletters made it into the top ranks during the same period. Whereas, 31% of the elite newsletters tanked their way into the bottom quartile.

Being Overhyped Can be Self-Destructive

According to studies, chasing returns may result in more loss of returns instead of any significant gain. This is because, too often investors make mistakes by thinking they have spent enough time investing, now it will be better to change the strategy, making the wrong move right when the strategy might instead give them huge returns. Investing does not follow time nor is it a slave to experience, a decade of investing won’t turn you into an expert.

A rational and calm approach to investing rather than falling victim to overhype is the key ingredient for success in investment.

How To Stay Cautious

The bottom line-avoid every site which relies on hype, promises returns too good to be true, or are generally shady. Advertising or deal promotions that promise to save your money and the notorious doomsday predictions should be off-limits. Don’t read them at all to avoid even a small risk of succumbing to them, no matter how strong you think your will power is.

Diversify Newsletters to Reduce Risk

You can study Hulbert’s data yourself to judge and get an idea about the newsletters with profitable portfolios as well as their risks and trading frequency.

A helpful method is to diversify newsletters that are actively managed, which in the long term may reduce your risks.

Recommended Portfolios for Consistent Returns

Recommended portfolios using Vanguard funds including Moneyletter, Sound Mind Investors, and The Independent Advisor for Vanguard Investors resulted in consistent returns. You can also get useful information on the StocksReviewed blog.

Conclusion

Finally, the most important and useful advice you can get as an investor is to stay vigilant and exercise caution. It is always better to be safe than to be sorry. Don’t give in to the hype and get impatient. This will save you both your investment and peace of mind.