Daily Stock Market Updates

Filed under: Financial Education

A lady stepped into my office concerned her financial advisor wasn’t being straight up about her financial situation.

She had purchased a variable annuity from the advisor and admitted she wasn’t quite sure how it really worked.

Uh oh. Red flag. She didn’t know how it worked.

I looked into the situation and found out she had paid over $3,500 in variable annuity fees and she didn’t even know it.

She fell into the trap of taking bad financial advice. In fact, it wasn’t just bad financial advice, it was downright horrible financial advice.

As a financial advisor myself, I meet people on a regular basis who have implemented very poor financial advice from what I’d consider to be financial product salespeople, not true financial advisors. A true financial advisor has their clients’ best interests at heart. Unfortunately, many so-called “professionals” don’t.

If you’re a hard-working American who focuses on your job outside of the financial industry, how are you to know when you’re receiving good financial advice versus poor financial advice? How are you to know when you’re being sold a good feeling rather than a good product?

Here are some instances when you should ignore financial advice.

1. When you’re rushed to make a decision.

Good financial advisors understand it will take time for clients to make a decision. If you’re planning for your retirement, which might last 20 or 30 years, that’s no trivial matter.

If you ever feel rushed to make a decision, ignore the financial advice. There’s nothing I hate more than a pushy salesperson, so I treat my clients like I’d want to be treated: I give them time to consider their options.

2. When the financial advice is directed toward someone else.

You might have heard specific financial advice given to a friend, family member, or someone on television or over the radio.

Many times, the temptation can be to apply this financial advice to ourselves. But the truth is, financial advice should really only be accepted by the intended party.

Say you’re driving home from work one day and you hear someone over the radio call into a popular financial talkshow. The financial advisor is telling the caller that the most important thing they could do is to pay off their mortgage.

You might think to yourself, “I have a mortgage. I have a little extra money coming in every month. Perhaps I should pay off my mortgage too!” While this is really an innocent thought, it’s important to remember that your situation should be approached by priority.

If, say, you have high-interest credit card debt, it’s probably best to pay off your credit cards before you start throwing money at the mortgage. You might even have a few other more pressing financial obligations to consider before you knock out that mortgage payment!

Be careful when listening to financial advice directed toward someone else. Don’t assume you should do the same thing. You might be able to learn a thing or two from what other people are told, but certainly don’t act on financial advice aimed toward others until you sit down with a financial professional to get a comprehensive financial plan in place.

3. When the advisor doesn’t have all of the information they need to advise you properly.

Your financial advisor should request a great deal of information from you in order to give you the most appropriate advice for your situation.

They need to know the balance of your bank accounts. Your net income. Your tolerance for risk. How much life insurance you have. Your pets’ nicknames. Okay, maybe not that last one.

In all seriousness, they do need to know a lot of information. But it’s not just your current financial information they need – they need to know your financial history and your financial future, as well.

Financial history is easy to give. But what about your financial future? Well, this is your intended or assumed financial future.

For example, will you buy a second vacation home in retirement? How much money will you need to live on when you’re 80? How likely are you going to need to financially support family members in the future? All of these questions matter.

If your financial advisor hasn’t taken the time to explore your financial history, present, and future, ignore the advise until they do so. The more work you put into this in the beginning, the better your financial wellbeing will be later on.

4. When the advice didn’t come from anyone but yourself.

Unfortunately, when individuals are left to the advice they’d give themselves, the advice isn’t always the best. Why? Emotions.

Consider the stock market crash after 9/11. Many people called their financial advisors wanting out of the stock market. Against their advisors’ warnings, they pulled their money out.

Over time, the stock market recovered, and many were left without recourse because they needed the money for retirement. They decided they’d only listen to their own advice, not the advice of the professionals. And, unfortunately, the cost was astronomical.

It’s always a good idea to run your financial ideas past others. Ask several financial advisors for their opinions. Ask your friends and family who know you best. Gather as much advice as you can find. Then, once you’ve considered all of your options, consider what would be the wisest course of action to take and take it.

5. When the advice is a too-simple-to-be-right solution.

If financial advice feels too easy to execute, it might be too simple to be right. Life, unfortunately, is complicated. And, if you want to solve life’s problems, many times it’s going to involve a plan that isn’t a walk in the park.

“Just buy gold! It’s all you need!”

“The default mutual funds for your 401(k) are good enough.”

“Whole life insurance is the best investment for you“

“Nobody knows what the future holds, so just live for the moment!”

This is all horrible financial advice. It’s too simple. It’s too easy to implement. It’s advice that would only work in an ideal world.

Not all advice is good advice. Test it before you implement it.

Permalink | Email this | Linking Blogs | Comments

http://dailyfinance.com/2016/04/21/5-instances-when-you-should-ignore-financial-advice/