Taking bad advice usually has negative consequences. However, taking terrible investing advice could cost you your future. If you receive any of the following tips, it may be a red flag that it’s time to start thinking about where you get your financial advice.
10 Pieces of Terrible Investing Advice You Should Ignore
1. You should use the same financial advisor as your family and friends.
Even if the suggestion comes from someone you trust, it doesn’t mean their financial advisor will have the best advice for you. We each have personalized goals, different levels of risk tolerance, and unique financial situations. So, you need to find someone who understands what you need.
You should look for someone who aligns with your goals and explains things in a way you understand. Therefore, you need to do your due diligence and research any new potential candidates. Gather as much information as possible before you make this important decision. Read other client reviews, set up a consultation, and ask how they make a profit. No matter which route you choose, it’s wise to find out who you are working with before you give them access to your financials.
2. Traditional investment vehicles like IRAs and 401(k)s are outdated.
For some reason, there is a current attitude that long-established strategies for generating wealth, such as traditional retirement accounts, are outdated. To put it bluntly, this is terrible investing advice that you should ignore.
There are reasons why most investors utilize IRAs and 401(k)s. While they may be boring and more lackluster than other, newer investing options, funding these retirement accounts is a tried-and-true strategy to build wealth.
3. Buying a home is always a good investment.
Generally speaking, real estate appreciates over time. This leads many people to believe that buying a home is always a smart investment. While this may be true for many people, there are times it may prove to be bad advice.
For example, if you don’t plan to live there long, the costs for the transaction, maintenance, repairs, taxes, and insurance could undermine your investment. It also doesn’t provide much security through retirement if the value of the home isn’t liquid and you can’t access the equity. I’m not saying that buying a home is a bad decision, but it may not be the best financial move for every situation.
4. When stock prices fall, sell everything to cut your losses.
Markets are constantly in flux, so you shouldn’t get swept away by every rise and fall of the ticker. Watching the market moves can become gut-wrenching, especially when prices are volatile.
If you see the value of your portfolio diving, don’t panic. Many people’s first instinct is to sell everything before they lose more money. However, making impulsive decisions like this are the worst thing you could do. It’s better to trust your strategy, knowing that the markets will eventually stabilize. You should adopt a more long-term view, or you could miss out on the gains when the market rebounds.
5. Investing is too risky; stick to cash.
Investing comes with inherent risks. But, not investing at all is the greatest threat to your long-term goals.
Of course, it’s smart to have some cash stores, but saving and investing serve two different goals. You need to invest so your money earns enough interest to grow your wealth and outpace inflation. Letting money sit idle in a low-yield savings account or under your mattress will reduce your purchasing power. It’s better to mitigate the risk and put your money to work for you.
6. Thousands of people can’t be wrong.
Many amateur investors chase trends because they fear they will miss out on an opportunity. They hear their friends talking or read news articles trying to predict the latest hot stock tip. In their minds, if thousands of people are doing it, then it can’t be wrong.
Unfortunately, many lose money when they follow fleeting trends. You must do your research and evaluate the investment before throwing money at it. Although there may be power in numbers, don’t fall victim to the mob mentality.
7. Create an investment strategy from advice on social media.
There are many financially-savvy influencers on social media that have good advice and strong backgrounds. However, there is also a ton of misinformation and terrible investing advice too. A glance at the loss porn and strategies shared on r/wallstreetbets will make the most experienced investors cringe. While you may be able to find some sound advice on social media, it’s usually not a good idea to take advice from someone who doesn’t know you or your situation.
8. Invest in the latest hot stock if people you know are making a profit.
Another problem with jumping on the latest hot stock bandwagon is that if share prices are up, it’s probably too late to make a profit. Most investors who make a killing during trends held stock prior to the frenzy. Buying it after it becomes buzzworthy won’t bring you big profits.
More conservative investors buy index funds with steady gains rather than trying to get lucky and strike it rich. Picking stocks is a gamble, and there are very few winners.
9. Increase your profits by timing the market.
Even novice investors know to buy low and sell high. However, no one can tell you exactly when that is. There is no crystal ball, and predictions are an educated guess, at best.
Trying to time the market rarely works out in your favor. If you buy too soon, you might pay more than you should. But if you sell too early, you miss out on the gains. It’s enough to drive you crazy. So, it’s probably wiser to invest in assets that provide greater diversity and insulation against market fluctuations.
10. You need to hire a professional to manage your portfolio.
Despite what people say, you don’t need to be an expert to start investing or managing your portfolio. While many feel more comfortable turning it over to a professional, DIY investors prefer to do it themselves to avoid the management fees.
If you aren’t quite ready to go it alone, there are free robo-advisors that can assess your situation and help you create an investment strategy. Once you determine your risk tolerance, it will select investments to match and make suggestions based on your goals.
Where to Get Good Advice
A financial advisor is there to guide you through important financial decisions. However, even experts make mistakes that could cost you money. Some investors find that they do better on their own.
The reality of investing is that many decisions must be made in uncertainty. But make no mistake; there is a distinct difference between losing money from a decision based on sound judgment vs poor counsel.
When choosing a financial advisor, you want someone who isn’t putting their self-interest before the client. Furthermore, you need someone who is knowledgeable and performs their due diligence before making a suggestion. If you disagree with their advice, get a second opinion. And never be afraid to ask questions. You want to be sure you have the right person for the job since you will be entrusting them with your future financial security.
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Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.