Consider the source.
As an investor, it’s natural to look around for ideas. You want to make sure you find the best deals — and that you’re not missing out on an opportunity. It’s true there are ideas everywhere. However, that doesn’t mean that every idea is a good idea. Or, even if the idea might not be a bad move, not every investment is the right choice for you and your portfolio. Before you act on that hot stock tip, take a step back and consider the source. Is it really a good idea to just willy-nilly commit some of your valuable financial resources? Here are five people you shouldn’t listen to when it comes to investing advice.
A random person at a party.
You’re at a party and someone starts talking about a hot stock tip. It might be tempting to jump on it as soon as you can log into your online brokerage account. Before you start moving money around, though, think about the source. Why is someone you barely know sharing this information at a party? Are they just trying to look good? Do you have evidence they know what they’re talking about? An even bigger red flag is if this virtual stranger is actively trying to get others to invest with them. If you’re not careful, you could find yourself involved with a scam — and not just a bad stock tip.
Watercooler talk can range from the latest show on Amazon Prime to stock investments. While it might seem exciting to do what everyone at work is doing, the reality is you might end up losing right along with them. It’s important to consider the credentials of the person giving the advice. Have they just been lucky in a bull market? Everyone feels like a genius when the market is doing well. But if you’re taking investing advice from your coworker at a time when the stock market is surging, that could be a sign that, rather than finding a good pick, you’re actually buying high and could see losses when the market crashes.
Is your sister-in-law gushing about her current amazing portfolio performance? Does your brother-in-law have the inside track on the next big thing? Either of these scenarios could spell trouble if you follow through. Watch out for promises of an exclusive “in.” Investment scam red flags include making you feel you have an exclusive opportunity and using others to help you feel the investment is legitimate. Don’t trust any unqualified relative to manage your portfolio and don’t give them money in the hopes that they will get you “in on the ground floor” of the next Google (ticker: GOOG, GOOGL). Chances are neither of these investment situations is going to end well for you.
The rideshare driver.
When everybody — including your rideshare driver — seems to be in on something, that’s a good sign you’ve already missed the window for maximum profits. Many times, people get excited about a stock or other asset when its price is high. Buying when the price is near its peak rarely turns out well. While you might recover some losses if you ride it out after the crash, the reality is general knowledge of an asset is usually a sign that the market is about to correct. Rather than trying to time the market along with your rideshare driver, consider looking into dollar-cost averaging and using index funds to reduce the risks that come with stock picking.
Talking heads on TV.
While you can get some good ideas by watching the financial media, the reality is, in many cases, the news is infotainment. As a result, sometimes headlines are sensationalized and advice is based on what’s likely to bring in an audience — and advertisers. Unfortunately, while you can find good tidbits, you’re mostly hearing noise. Remember that while the talking heads on TV might be knowledgeable, they are mostly there to entertain. Before you move forward with their advice, it’s a good idea to review your own investing plan and figure out if their recommendations make sense for you.
Who should you listen to?
Getting advice from a third-party investment professional who understands your goals might be your best bet. If you want help putting together an investment plan that will take you through the next stock market crash and beyond, a good investment professional can help you build a portfolio that makes sense for your situation.
People you shouldn’t listen to for investing advice.
— A random person at a party.
— Your coworker.
— An in-law.
— Rideshare driver.
— Talking heads on TV.
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5 People You Shouldn’t Listen to for Investing Advice originally appeared on usnews.com