Skip to main content

Unbiased Financial Advice

Early this week, on Monday, Josh, a dear friend called me and asked me for some investment advice. He has just become a father and wants to create a fund so that it takes care of his daughter's education. Now, this is a kind of call that I keep getting regularly. Most of my friends (and friends' friends) ask me for investment advice thinking that I am an expert in the field!! I have got numerous offers to start a private (equity) fund from a few of my friends where they will "outsource" their headache of managing their savings. What I fail to explain to them is that there are no experts in the world of investments. Everyone is as good (0r bad) as the next person.

But this call got me thinking about investment advice and advisers in general. Apparently, my friend had been approached my a few financial advisers who had advised him to buy into certain mutual funds. Typically, these advisers are associated with financial brokerages and make money from commissions when people buy into funds. So, their incentive is to make people continuously churn their portfolios (because thats the only way they make any money).

I think its important that people stop taking their financial advice from their brokers. If you are seriously ill, do you go to a chemist? No. You go to a doctor. A doctor does not have (or atleast should not have) any incentive for selling medicines. The doctor would want to see you get better so that next time you fall ill you consult him. Similarly, for financial advice you should go to an independent financial adviser who charges you money for his advice and not from commissions for selling financial products. That is the only way can hope to get an unbiased financial advice.
Labels:

Comments

Post a Comment

Popular posts from this blog

Oil, Liquidity and the Sensex @ 12K

The BSE Sensex – the default benchmark for the Indian equity market – touched 12,000 on Friday last week. There is a sense of euphoria, disbelief and caution in people depending on which group they belong to. There are people who have been waiting for a correction from 6000 and are amazed to see the sensex at double that. There are others who are perennial optimists and expect the market to continue giving them the returns in the way it has in the last 3 years. Milestones like 12000 are a nice point to just stand back and access the overall situation. So, what is the reality of the day? Today, the price of oil is hovering around $70 with the political situation in Iran not getting a whole lot better. Don’t think its going to come down in a while. Interest rates are showing signs of hardening. Prices of gold, silver, steel, aluminium, copper, zinc and sugar are in multi year highs. Real estate prices are going through the roof. So, in a way all asset classes are seeing handsome app...
Post a Comment
Read more

Porfolio Structuring (PS) Step 1: Evaluate Current Status

The first step to any long term investment plan is to understand where we are at present. So, to start with you need to list down your existing networth. For example, you can have a list as follows: Provident Fund 100,000 PPF 50,000 Bank FD 50,000 Mutual Funds-Equity 150,000 Mutual Funds-Debt 50,000 Cash In Savings Account 30,000 House 2,000,000 Housing Loan -4,000,000 Others 0 Total -1,570,000 A couple of things to note here. 1. I am not calculating the value of any gold/silver jewellery that you may be having. Indians, typically are not very keen on selling their family gold/silver so it really does not count as investment. You can think of it as an additional bonus if you do have gold/silver. 2. I am including the housing loan you may have as a negative here under the assumption that that is your primary home and not a second home bought for investment purpose. Also, I am ...
Post a Comment
Read more

13 years to become an expert

In Malcolm Gladwell's book Outliers, a study done by Anders Ericsson on violinists shows that it takes about 10000 (ten thousand) hours of practice to become an expert at something. When I read this for the first time, I was fascinated by the fact that it takes such a long time of dedicated effort to become really good at something. Today, I was reading a book on trading strategies and it mentioned that a traders life is divided into decades. The first decade he makes his mistakes, the second decade he makes his money and the third decade he enjoys the money. That set me calculating and trying to tie Gladwell with the traders cycle. If a person spends 3 hours per day for 5 days a week for 52 weeks a year, he will need about 13 years to be an expert at trading. And that is assuming that he is passionate about it in the first place. So, now we know, why we haev so many people failing as traders. It's just that they have not served their time as yet!!
Post a Comment
Read more