Getting the Best Investment Advice
Getting the Best Investment Advice
Most financial experts agree that it’s easier to earn money than it is to hang on to what you earn… and make it grow. This is because most people are too busy making money to afford the time to build up the knowledge and judgement that is needed to invest their capital for maximum return at minimum risk.
Many professional advisers are available. But few of them have a sufficiently broad knowledge to be able to advise you about all fields of investment.
Most of them singlemindedly recommend their particular field as the best, because it is the one they know and believe in – and often because it is the one where they can make money themselves, their commissions or profit margins depending on selling to you and others like you.
This commercial instinct also biases some advisers towards unduly optimistic sales talk about the money-making possibilities of the particular investments they recommend you should buy. “Talking up” the market promotes their business volume.
Often they can only sell an investment to you, not buy it from you (a life insurance policy, for example), which gives an additional reason for painting a rosy picture.
Yet… you need professional advisers, especially if you are investing in technically complex fields such as shares, collectables and insurance schemes.
Your best professional adviser is likely to be one who does not deal in the investment he advises on, does not receive commissions of any kind for promoting such investment, and earns his or her living from fees that you pay him directly (preferably not related to your volume of business).
For example, before buying a rare stamp or coin on auction, you would be wise to pay an expert to give his or her independent opinion on the item you are interested in buying.
Often it is not possible to find such advisers who also have sufficient knowledge and excellent judgement. Your alternative is to use advisers who are open with you about any financial advantage they receive through promoting your involvement in the investments they recommend.
You should build up a stable, long-term and honest relationship with such advisers over the years. If you are looking for an adviser, the old rule applies: Ask around for personal recommendations by friends, colleagues and relatives.
The greater your own knowledge, the better you will be able to judge the soundness of the advice you receive from specialists.
The simplest way to keep up-to-date on the broad investment scene is to read diligently the best magazine, newsletter or website on offer in your country that covers investment, particularly personal finance (which I call moneycraft). Build your own library of clippings and articles of useful information.
Specific information such as rates of return on particular investments will eventually become out-of-date. But the basic principles are timeless. If you follow them diligently, there is no reason why you shouldn’t become rich.
The effect of compounding (ploughing back what you earn to increase your capital, so it in turn earns more, increasing the amount available for ploughing back} is a marvellous thing.
In considering any investment, these are the basic principles that you should take into account: Annual rate of return before tax; tax payable on the return; risk; liquidity (ease with which you can convert your asset back into cash; price; timing (when it’s the best time to buy or sell); and the buy/sell margin (the difference between what you have to pay and what you would get back if you re-sold the asset immediately to the seller – also called the in-and-out cost).
Any investment decision requires a balancing-off of advantages against disadvantages, judgement on timing and future growth prospects, and matching of what’s on offer to your particular financial circumstances and personality.
Getting the Best Investment Advicetaken from our ‘On Target Newsletter’ issue no 261