Slate on Financial Planning
Slate has an 4-part series by Henry Blodget (the guy who hyped up tech stocks in the Dot Com era and then got dinged for it in the post Dot Com era) on financial planning. Given Blodget's past, it's hard to take it seriously - the guy who predicted Amazon would hit 400 (which it briefly did) is telling me that I'll be lucky to get 6% returns out of the stock market? - but it's actually pretty good and seems to be full of reasonable financial advice. Blodget takes a trip to a financial advisor who, in perhaps the greatest single most ironic event in the universe, fails to mention the assumptions and hidden fees associated with the advice. The estimates of future performance are based on "historical data" to give a return of ~10% (before fees). Blodget picks the analysis apart and looks at what you could really expect to get but he does go through the rough work about where he's coming up with numbers (sadly, if he'd only been as diligent at Goldman Sachs, he might not be banned from the securities industry...).
In the financial markets, the "long term" is long. Over the past 200 years, U.S. stocks have, on average, returned approximately 10 percent a year (about 7 percent, after adjusting for inflation). For many of those 200 years, however, stocks have returned nothing—or worse. The fallow periods, moreover, have not just lasted months or years. They have lasted decades.
Blodget links to a Fortune article which details what that "historical average" that everyone talks about really means...
Next, Blodget talks about something which you rarely hear about - fees. All those Mutual funds that people love charge management fees (usually around 1-2%) that are taken off the top. Whether the fund increases in value or not. When your fund is only returning 3-5%, it makes a big difference (for the record, Index fees like the S&P 500 funds usually have lower fees because you don't have to pay for all that "advice"). Blodget also delves into inflation costs and taxes, all which eat away at your meager returns. Taking this into account, his projected return is -1% (although remember, this is taking into account inflation - just leaving the money in your checking account is losing money as inflation marches on).
When it comes to individual stocks, the best advice is not to play. Index funds will on average get better returns, especially if you place any value on your own time (and happiness). And you definately shouldn't listen to stock advisors, analysts (like Blodget himself or the lastest fad IPO).
In the bull market of the late '90s, the stock-picking mantra for the casual investor was, "Do it yourself!" In 2001, after the crash, it became, "Hire someone to help." Unless you just enjoy the stock-picking game—a common and perfectly acceptable reason to play—the permanent mantra should be, "Don't do it at all." As numerous studies have shown, the vast majority of professional investors can't beat the market.
And in case you had not grasped that everyone in the financial industry has some angle and is full of crap, Blodget has a financial analysis / consulting business he is plugging.