The team at Agora Financial, an independent subsidiary of Agora, Inc., understands that there is a lot of noise out there when it comes to investment advice. In one corner, you have television personalities yelling that you should buy or sell a certain stock today. In another, you have financial advisors pushing you to purchase certain funds. In yet another corner, there are the doomsday predictors, who are convinced that the market will crash any minute now.
With all that noise, it can be difficult to separate the sound investment advice from the shaky. It’s your money and your future, and you want it to go as far as possible. You don’t have to become an expert investor or a financial guru to figure out how to make the most of your money. You just need to figure out what to listen to and what to ignore.
Separate Valuable Advice from Junk
Step one when it comes to separating the investment wheat from the chaff is learning to where to go to find solid advice. Dan Solin, writing for the Huffington Post, notes that the most sound investment advice is typically found in financial journals, such as the Wall Street Journal, the Financial Analysts Journal, and the publications produced by Agora Financial.
It takes some digging to find the good stuff and that’s part of the point. Information that is readily available or freely dispensed typically has some sort of agenda behind it. Solin describes it as “financial pornography.” The focus of thIS so-called financial porn is not to educate the average investor, but to capitalize on people’s uncertainties and fears.
One example of junky investment advice is the insight offered by Larry Fink, according to Solin. Fink is the CEO of BlackRock and has a history of offering bad advice. In some cases, that advice proved to be very costly, such as back in 1986, when Fink’s wrong interest rate prediction caused his employer to lose $100 million.
When looking at investment advice, it’s important to look for facts and raw data. Although it’s easy for people to use emotions and feelings when they predict the direction the market will take, feelings don’t mean much at the end of things. Solin encourages people to diversify and to look for the lowest cost funds when investing, so that they are minimizing risk without relying on the predictions of others.
Check for Bias
Another way to separate sound advice from the not-so-sound is to check for bias. According to a representative from Agora Financial, all that advice out there “can be very confusing. All of the different media outlets have their own agendas.” The same can be true of certain financial advisors.
For example, your financial advisor might push you to invest in a specific mutual fund because he or she earns a percentage of the fee for that fund. The same can be true of certain stocks. One way to reduce the potential for bias when you work with a financial planner is to go to one who works on a fee-only basis. He or she won’t be earning a commission off of the investments you make and is more likely to offer you sound financial advice that benefits you, not him or her.
Bias can also come in the form of advertising. As the representative from Agora Financial points out, “The target audience for the major financial institutions is advertisers, not the investor.”
An investment program on a cable or broadcast television channel stands to make a considerable amount of money from certain companies, particularly if those companies advertise on that channel.
The Role of Technology
Technology has been both a blessing and a curse when it comes to sorting through financial and investment advice. On the one hand, it’s now very easy for an investor to get access to financial analysis and hard numbers, using a service such as Google finance or Yahoo! Finance. But, greater access to information has also led to an increase in spurious financial advice, according to Michael Kitces of “Nerd’s Eye View.”
Kitces notes that technology has changed the meaning of the phrase “10 year historical returns.” These days, some investments are promoted using 10 year historical returns. However, it turns out that there is just one year of actual track record and nine years of back testing, which looks out how an investment would have performed, had it actually existed in the past.
Technology makes it even more important for an investor to truly understand what data and information is being presented to him or her. Investors should dig deeply into any information provided to find out if it really has legs to stand on or if it’s built on data that was in turn created by a computer program.
Investing can be complicated and the temptation to turn over your financial future to a seeming expert can be high. The team at Agora Financial encourages everyone to dig deeper and find reliable information to make sound investment choices.