For about 15 years, I’ve had the pleasure of working in the financial services industry, with 5 of them being on the retail brokerage side. I wish I had a dollar for every time investors told me who they “listened to.” Don’t get me wrong, there’s nothing wrong with taking advice from others in regards to your investment needs, this is a personal finance blog after all. Nonetheless, the problem that can arise is when the advice is blindly followed and puts your investments at risk. This begs the question – who exactly should you listen to when it comes to investing?
Dangerous Talking Heads
I love watching CNBC. In fact, my young kids go crazy when I turn it on. While it shows a bit of my nerdy side, I will generally never take investing advice based off of the opinion of some talking head on the television. Why do you ask? It’s quite simple in fact – they’re there to get ratings and nothing else really. Their job is to sensationalize what is going on in the stock market, doing nothing but creating noise that can make it difficult to figure out what you should be doing with your money.
If that’s not enough, the underlying problem is that you can always find someone who’ll tell you pretty much anything. Most importantly, these talking heads know nothing of your specific needs, situation or investment plan. While it can be entertaining or maddening to listen to TV’s investment advisers or financial experts, my suggestion is to take most of their suggestions with a grain of salt.
Can Advisors Be Trusted?
If you can’t necessarily trust the hot air that is coming out of most of the talking heads on the financial “news”, can you trust your personal financial advisor? Well, yes and no. I believe that there are a great number of financial advisors out there that genuinely care about the investing needs of their clients and will do their best to position them well in the stock market. Generally speaking, these are going to be fee-only advisors and are not compensated based off of which product they steer you into.
The problem (which is quite prevalent among those who are looking to invest in the stock market with little money) is that their money can be eaten up by fees and mismanagement. Put another way, many advisors out there are compensated based on the products they sell, creating an inherent conflict of interest in a situation where they are encouraged to suggest something that doesn’t fit your needs and which may often be laden with fees.
That said, I don’t believe all financial advisors are bad – you just need to know what to look for. Make sure they’re not compensated because of the product they sell you and research their background (FINRA) to make sure they do not have any complaints filed against them. A financial advisor can be a welcome addition to your investment strategy, as long as you choose a good one.
You Should Listen To Your Investment Plan
Now that we know to avoid the financial noise and be leery of some financial advisors, who or what should you listen to with your investment in the stock market? When in doubt, follow your investment plan and strategy.
What’s an investment plan you ask? While it may sound difficult or tough to figure out, it’s only as complex as you make it. You may well consider your investment strategy to be a navigation system (or a map) that you will be using when going for a ride. Will you get in your car blindly and start driving just aimlessly? I guess not in general if you’re knowing your targeted destination, in this case, your financial objectives and goals. You decide where you’re going and you’re figuring out how to get there. Your destination is your specific retirement goal. You need to reach your goals efficiently if you want to be able to retire early.
Investing in the stock market is no different. Take saving for retirement as an example. You’ve determined that it’s best to start investing in your 20s and that you want to have a long term approach. This is what you want to base your investment plan around. Taking a step back, this also requires you to know not only what your investment needs/goals are, but also what your risk tolerance is and what you’re going to do to keep investing costs down. All these factors require some self-evaluation and introspective analysis, but once accomplished, will give you a plan you can use to help guide your investment decisions instead of leaving you impressionable to anything “professionals” suggest.
Who do you trust when it comes to investing in the stock market? Do you have an investment plan yet?