Why YOU are your own best investment advisor

Today I want to pose a question and give you some food for thought. Why do you think it is best to be your own investment advisor?

First I want to say that I am not advocating that you should not have investment advisors. Many can be helpful when it comes to helping you achieve your financial goals. What I do want to advocate is being knowledgeable enough to be your own best investment advisor.

Sometimes it is a good thing not to listen to other people’s opinions. When it comes to money everyone has an opinion. Have you heard these before?

  • I just made a 50% return this year on one stock! You should buy it too.
  • Investing in real estate is the best. Even in a down economy you still have renter’s paying down the mortgage.
  • Mutual Funds are the best. You just put your money in and don’t worry about them.
  • I max out my 401k because I heard that people can retire early when they do that.
  • My financial planner put all my finances together for me. Now I don’t have anything to worry about. You should visit them too!
  • X package/product is great because it allows you to do Y with great results!

What is the problem with all these statements? To me, they all sound like a statement from someone who doesn’t know what the *&!# they are talking about. ;-)

This is the #1 reason to be your own best investment advisor. It’s your money and it’s up to you and only you to take care of it! Are you going to blame the person who gave you financial advice or are you going to blame your own ignorance when your financial situation goes sour?

How can you be your own best investment advisor?

  1. Don’t be that guy (or gal). What I mean is don’t be the one spewing useless financial drivel to people you hang out with. People will either not listen to you because they know better, or will listen to you and potentially make some stupid financial mistakes and want to blame you. Or they just won’t care either way, in which case, it’s best not to say anything at all.
  2. Educate yourself. If you hear a financial word like “no-load” mutual fund and don’t know what it means, find out! If you care about your money at all you will take the time to educate yourself.
  3. Learn the lingo. No, not the Tango. Although that would be fun! Learn financial lingo. That way you know what people are referring to when they talk or when you read something on the web.
  4. Understand the uses of different financial instruments. Money is a tool. The things you use to manage money are tools. The things you use to invest money are tools. They are all tools. You can’t understand how to be a carpenter if you don’t know how to use a hammer, a measuring tape, and a chalk line. The same goes for your finances. You won’t get the full use out of a financial tool unless you really know how to use it. Stop using a hammer on a screw when you really need a screwdriver.
  5. Trust your gut. Once you have an understanding of money you will usually be able to tell whether something is a good deal or not. This statement always seems to hold true when it comes to finances. “If it sounds too good to be true, it probably is!”
  6. Get a second or tenth opinion. Wait, you just said don’t listen to other people’s opinions. Well if you heard that you aren’t understanding what I am writing. Don’t be a fool. There are plenty of people that are way smarter than you when it comes to money. Your job is to listen to the intelligent ones and it is your job to NOT listen to the stupid ones. Once you learn more about finance & money you should be able to distinguish between the two. Multiple opinions will help you discover the best course of action even more.
  7. It’s your responsibility. YOUR money is YOUR responsibility. Act that way. Don’t give over full control to an investment advisor that charges out the wazoo. Be active in managing your own finances.

Well I hope that gets you down the right path to improving your finances. If I haven’t hit a chord yet I promise that you won’t be disappointed by the end of the week. ;-)

Check back tomorrow for another exciting post about personal finance and the economy. So what are you waiting for? Subscribe to my RSS feed by reader or by email so you don’t miss a thing!

Comments

  1. Jeremy,

    Another great financial post. A while back when I took the initiative to learn about investing on my own, I quickly learned that the mainstream “wisdom” was actually a bunch of bs. I remember hearing my father and his friends discuss investment advice at family parties, and thinking to myself “Wow, these guys don’t know anything.”

    As with anything else in life, it’s important that people actively seek the truth in their area of interest in order to get the best results possible. Investing is no exception this this rule.

    Thanks for the great article! I know that when I do start investing again, I’ll be taking my own advice.

    Rahul’s last blog post..How to Deal with Criticism

  2. Hi Rahul,

    Don’t forget to figure out who is wiser and smarter than you in investments and listen to their advice as well. The key is knowing who they are. ;-)

    Cheers,
    Jeremy

  3. Ah yes, that too! Those are the people who can serve as mentors on my investment journey. :)

    Rahul’s last blog post..How to Deal with Criticism

  4. Who cares about our money more than us? That is why we need to learn how to manage our own money.

    Cheers
    Vincent
    Personal Development Blogger

    Vincent’s last blog post..Why The Grass Is Always Greener On The Other Side

  5. I’m a firm believer in working to one’s strengths and delegating the rest. I knew enough about finances to know that I had no interest in learning more. So I researched enough to find a planner I trust a lot, told her my long-term goals and said: talk to me when I need to make a choice about something.

    We check in with each other about every six months and everyone’s happy.

    Alex Fayle | Someday Syndrome’s last blog post..Do You Know How Happy You Are?

  6. Hi Alex,

    I agree. Delegation is so important. You can’t be totally clueless or you will have the wool pulled over your eyes. But when you know enough to pick a good planner, that is all you need. Trust is a huge factor too. I think it would be hard to trust her if you didn’t have a certain foundational understanding of investing.
    Id be interested in talking to you more about this topic. Maybe have you guest post about this if you are interested? ;-)

    Cheers,
    Jeremy

  7. I believe self-awareness is the key to success in all areas of our lives, and personal finance is certainly no exception.

    The best way to frame the question, “Should I be my own advisor?” is with a question that is outside of ourselves…

    Instead, we should ask, “If someone came to me asking where to find an investment advisor or financial planner, would I recommend ME as that investment advisor or financial planner?”

    In other words, would you recommend YOU as an advisor?

    I must admit, I have a bias in this area because I am an investment advisor and financial planner. I can say with experience that my number one job in that role is to protect my clients from themselves.

    Left to our own emotional tendencies, we are often tempted to act in an almost opposite way that is in our best interests. The “average” investor will buy stocks when they are high and sell stocks when they are low; they will follow one step behind “the investor herd” when it is more prudent to be one step ahead; and they will perceive risk as low when real risk is high and perceive risk as high when real risk is low.

    Put simply, our brains are not “wired” to be good investors. Money is an object that evokes emotion and emotion does not always lead us in a rational direction…

    “The emotions aren’t always immediately subject to reason, but they are always immediately subject to action.” ~ William James

    “All know the way. Few actually walk it.” ~ Bodhidharma

    Great post, by the way…

  8. Hi Kent,

    I was hoping you would drop by this week. ;-) To be honest, I struggled with the title a bit. Glad to see it is making people read the article. ;-) You know, I certainly agree with everything you said. It’s hard to argue with it. I have read a lot about how we just aren’t “wired” to make intelligent investment decisions. And finding a trustworthy financial advisor is a smart move for someone that wants to invest their money wisely. All great points! I really appreciate you dropping by and sharing your wisdom in a lengthy comment.

    Cheers,
    Jeremy

    P.S. Oftentimes we do need other people to protect us from ourselves, not just in finances, but in everything…

  9. Great comment thread!

    I agree that sometimes we need people to protect us from ourselves. The problem is often they continue to protect us and never teach us! Once someone decides to learn something for themselves they do become their best advisor even without the full extent of knowledge or experience from a professional. It’s nearly impossible to have two people’s interest purely aligned.

    -Bill

    Bill @ Learn the Stock Market’s last blog post..Stock Return – Review of All Stock Picks