#1 Rule of Investing: Don’t Take Advice From Your Neighbor!

This week I had a client come into my office and say something very ignorant about his investments and I feel the need to share.  First of all let me start by saying that my job as a Financial Planner is to give clients personal financial advice and help them plan for their short and long term goals.  My specialty is investment, retirement, and estate planning; but I also assist clients with personal budgets and money management.  I had a young client book an appointment with me because he wanted to buy Gold.  Believe it or not there is a branch location of my Financial Institution that actually buys and sells Silver and Gold Bars; but that is besides the point.

This client came in to my office with his friend who advised him that Gold is the place to be, and it is definitely the commodity to buy in his investment portfolio.  The client is a Graduate Student who has a total accumulated life savings of $10,000.  The entire amount is currently invested in a Balanced Fund, but the client is not happy with the performance of the Mutual Fund.  My job is to make sure that our clients are happy with the services offered from our Financial Institution and to make sure that our clients have the best Products for their personal needs.  All I can do to help clients is give them all of the relevant information and  make my professional recommendations, but ultimately  the client makes the final decision.  I am not an Investment Broker and I can not transact on my clients behalf.  When I asked the client why he was unhappy with the Balanced Fund performance and why he wanted to buy Gold he responded “Because I have lost money in the Balanced Fund and because my friend told me to buy Gold.” (the friend who was with him in my office)

If there is one thing in the entire world that I hate it is people who make uneducated decisions about their money and their investments because their friend, neighbour, co-worker, or husbands sisters cousin told them to do it.  Unless your husbands sisters cousin is a Certified Financial Planner or another type of Investment Professional no one should be taking advice from them.  I proceeded to ask the friend why he told his friend to buy Gold, not because I am a jerk but just because I am trying to determine the clients ultimate needs.  The friend (who was also a student but for some reason was dressed in a suit and tie) said that, and I quote, “Global speculation over the last six months says that Gold has consistently increased in value.” Without trying to laugh in his face I explained that Gold is a commodity and that it is a lot higher risk than his Balanced Mutual Fund, if he was uneasy with the 50% equity holdings in his Balanced Fund, he will probably be very uncomfortable with the daily and long term fluctuations in the price of Gold.

I also explained that it is never a good idea to buy into a commodity after you have been reading about its success for half a year.  The goal of investing is to buy low and sell high; but if the entire world is talking about the great track record of Gold over the last 6 months the odds are that you will be buying in when the price is very high. It is also never a good idea to have our entire life savings in the same investment.

When people hear that other people are making money it may be human instinct to be jealous; we want to make money too.  Investing (and money in general) is a business decision, and investing can become a bad decision if we let our emotions get involved.  Emotions run high with adreneline when we hear about stocks or commodities making profits.  We may make a quick decision to try and earn a quick buck or two by buying an investment without all of the pertinent information and without knowing the associated risks.  Just because an investment made money in the past doesn’t mean that it will make money in the future.

(Photo by Design by Zoury)

Kristina Tahnyak

Tahnya is a Certified Financial Planner and former Investment Advisor turned marketing and communications professional She holds a degree from Concordia University, is debt free and currently works in the field of digital marketing.