3 questions to ask before acting on an investment advice

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Investors, on most occasions, fail to do due diligence and end up acting on information provided by peers or those who don’t possess enough market intelligence and experience.

When 35-year-old Kishore received an SMS from an unknown number regarding investments and how to gain double-digit returns from stock markets, he wasted no time in contacting the concerned person. Talks and negotiations led to investing a sizeable chunk of his savings into stocks.

A few months down the line when his stocks crashed, Kishore couldn’t trace his advisor. He could do nothing except to rue his decision. Unfortunately, Kishore is not alone. There are many like him who blindly act on investment advice offered by peers and self-proclaimed experts.

Investing money requires a meticulous approach and acting on a piece of advice calls for adopting an extra layer of caution. Before making any move, you must watch out for these things and ask these 3 important questions:

1. What’s the source of advice?

Though an obvious thing, it’s often the most overlooked aspect. Investors, on most occasions, fail to do due diligence and end up acting on information provided by peers or those who don’t possess enough market intelligence and experience.

In this digital era, there is no dearth of people offering investment advice and everyone claims to be an expert. However, this is not the case. To make a smart investment, you need a smarter adviser. Before taking any course of action, find out if the concerned person has the relevant experience and degrees or not.

Check out how long he/she has been into this domain, and if others have gained from them. Instead of acting on random advice, it’s better to avail services of professionals with in-depth experience. Many financial advisory firms maintain a highly qualified team of experts who possess the requisite skills and knowledge that can help you in making an intelligent decision.

2. Does the advice align with your financial goals?

To achieve financial freedom, it’s crucial to align investments with financial goals. Every investor is unique in terms of income, liabilities and risk appetite. Therefore, what may work for others might not be prudent for you.

Hence, it’s vital to gauge whether the advice is in line with your life goal or not. For instance, while equities can help generate inflation-indexed returns in the long term, a significant tilt of your portfolio towards this asset class on retirement can prove to be counter-productive.

This is because retirement is the time where there’s a brake on active income and, hence, capital protection gains precedence over returns.

3. Is the advice universal or customised?

Investments don’t follow a one-size-fits-all approach. Financial standing of each one of us is different and so are our needs at different stages of life. Therefore, universal advice may not work in a specific case. Before taking any action, find out if the piece of information is applicable to all or tailor-made for you.

Depending on the specifics, it’s necessary to measure how the advice will help you achieve your objective. It’s prudent to act on it only if it helps you satisfy your particular goals.

In conclusion

Today you, the investor, have a plethora of investment options at your disposal. However, what’s essential is to be aware of the pitfalls and seek help from seasoned professionals to maximise your gains.