Expensive suits, fancy offices, but can you trust Financial Advisors with your investment pot? If you are anything like I was 20 years ago, you would believe that the financial industry is geared up to make you money and is focused on your success.
Nothing could be further from the truth. Read the five biggest myths about who you can trust with your retirement fund.
1. Believing the Financial Advisors Have Your Best Interests At Heart
Over the last 50 years, we have been indoctrinated to hold professional people in high esteem; a job in banking was respected. Working as a Financial Investment Adviser meant you understood how to invest money on behalf of your clients. But since 2008’s financial crisis, we have seen this stripped away to reveal the truth; they are only human, and humans have flaws, plenty of them!
Bankers once renowned and respected for being conservative with other people’s money were no longer conservative. They nearly lost it all. Cash in the bank was supposed to be a safe haven, yet it had been completely risked.
They were searching for ever-increasing profits; they took risks with our money and never told us.
Investing it in funds and derivatives, they knew little about, such as murky Mortgage-Backed Securities & Collateralized Debt Obligations, so they could increase their own profit margins and secure bigger bonuses.
2. Believing Banks Are Prioritizing Economic Growth Through Lending
Now they are too conservative, being too scared to lend money to the very businesses that keep our whole economy going. All this whilst having their profits bolstered by an extremely low cost of money (Fed Funds Rate, Bank of England base rate).
They are getting the money at practically no cost while lending it out at still pre-crisis rates. You try getting a loan under 3%. All this while they are continuing to pay themselves big bonuses again.
3. Believing Financial Advisors Understand Risk
Financial advisers who talk about risk management squarely do not understand risk.
Just before the Financial Crisis struck, record numbers of Newsletter writers, Hot Stock Tipsters, TV Pundits were all still bullish.
Even when the crisis struck, if you had called your adviser, he would have told you to “stay with your funds,” “do not do anything,” or if you really insisted you wanted to move to safety it is then you find out that you cannot as you are stuck in a fund for a “minimum period” and if you moved out, there would be a “penalty.”
How is that managing risk? Managing risk also should mean you have the ability to move funds quickly with no cost to avoid demolition to your retirement fund.
This exactly happened to my father; he was injured in a horrific workplace accident and had to retire handicapped early. He received a small award from the courts to compensate him for the pain (just enough to live on). I took him to see the most respected Financial Advisers in his area. With their fancy offices and rows of Audi’s in the car park, my father was quickly convinced these people would conservatively invest his money to enable him to live out the rest of his life with fewer money worries. He needed to focus on assisting my mother, who also has health issues.
BOOM financial crisis.
50% of his original investment has vanished. He could not get out of the contracts, and now he needs to hope the markets recover to pre-crisis levels before he even sees the amount he invested. This could be 3 to 5 years if he is lucky. In the meantime, he is drawing down this reduced amount to cover his living expenses, this money he will never get back.
4. Financial Advisors Know How the Stock Market Works
My point here is simple.
Financial advisers, in general, are experts in selling you funds, pensions, and insurance; they are not experts at understanding what way the market is heading and if those funds will make you any money at all.
However, they are also experts in taking a fixed percentage of your money every year whether you make a profit or not.
So to them, the main focus is on how much of your money they can invest in a 3rd party fund, so they receive a percentage of the value of that portfolio every year.
They are measured in terms of the Value of Funds Under Management & Increasing their own profits.
You will never see a marketing campaign suggesting they will make you money or will beat the market because mostly, they cannot.
5. Investing Is Too Complicated For Me To Understand
Now is the time to take control; you are probably visiting this site because you want to:
- Take control of your investments.
- Understand how the markets work
- Make decisions.
This Liberated Stock Trader is dedicated to teaching investment and trading principles that can be applied to Mutual Funds, ETFs, Stock Market Tracker Funds, and investments in general.
Wouldn’t you like to know how to evaluate whether the ETF or Mutual Fund your adviser recommends has any chance of making money in the near to medium future?
6. Typical Scenarios Where Trust Should Be Questioned
People’s stories tend to fall into these areas.
- You are new to the stock market and want to begin really learning how best to invest in the stock market before risking any capital. (best case scenario, but rare)
- You have been investing in the stock market for some time, but see that you need to take your skills to the next level, so you can start realizing consistent profits. (uncommon, but it happens)
- You have been burnt and have lost a significant portion of your life savings or wealth, but you are starting to realize that YOU need to take control. (most common)
Many people get burnt in the stock market because they trust others before they trust in themselves. Sure, if you have not spent the time learning how to invest properly, you have to trust others if you want to be in the game. Therein lies the problem.
I am not going to tell you, learning the Stock Market is easy. It’s not. But spending time improving your skills is a lot easier than watching other people flush your money down the toilet.
“Love all, but Trust a Few”
7. So Many People to Trust, So Few Trustworthy
There are so many people out there that want you to trust them with your money.
- MicroCap Stocks & Penny Stock Newsletters – you already know my opinions on these companies. See this article Penny Stock Newsletters.
- TV Gurus – Cramer and his gang ensuring the stock market maintains a circus-like atmosphere
- Stock Market TV shows – adding drama where there is none, so they maintain ratings.
- Fund Managers – we already know the fact that on average, about 70% of Funds and Fund Managers fail to beat the market.
- Self-proclaimed stock market genius’ offering us everything from FOREX Robots to “How I made 2 million dollars in 1 year” eBooks.
- Bulletin Board Junkies hang out on Google and Yahoo Finance, commenting on stocks and disrespecting each other when they disagree.
But there is one group of people I overlooked, mainly because I never thought about using them—advisory Brokers.
8. Advisory Brokers.
Just search Google for “lost money” near “advisory broker.” I am sure there may be one or two advisory brokers out there with some idea about what they are doing, but they are few and far between.
They also make their money from trading commissions or a percentage of your portfolio. Do you really think they are looking after your portfolio individually? Do you think they would do the depth of research YOU would do on YOUR stocks if YOU only knew how?
“As soon as you trust yourself, you will know how to live”
Johann Wolfgang von Goethe
Liberated Stock Trader is all about YOU.
Why Liberated in the name – Liberated means to Liberate YOU to make YOU a Liberated Stock Trader. It’s not about me. That is why I have so many FREE Stock Market lessons on this site, actually structured into an easy-to-follow training course. That is why I continually add to over 100 individual lessons.
Further Reading – Learn Stock Market Investing
Now over to you, what are your issues with financial advisors, and financial planners? Am I wrong? Share your experiences in the comments below.
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