Today, bloggers across Canada are promoting financial literacy by writing about their best financial tip in a campaign organized by Life Insurance Canada. I’m pleased to contribute this post.
I decided to pick a financial tip different from what you’re likely to see elsewhere:
TIP: Don’t look for a financial advisor who can steer your savings around stock market drops because these advisors don’t exist!
Too many people have the wrong expectations for their financial advisors. They get upset when their portfolios drop in value and blame their advisors for not avoiding this loss of money. If the whole stock market or bond market goes down, then your portfolio will almost certainly go down too. If the whole market doesn’t drop, but you lose money anyway, then maybe you have a legitimate beef with your advisor. If you think you already have an advisor who can see stock market plunges coming, either you misunderstood the promises he made, or he misled you.
You may ask, what’s the use of a financial advisor who can’t keep me from losing money? Well, many Canadians take the time to learn simple indexing strategies and invest on their own. Other people who are lucky enough to have good financial advisors get the benefit of someone who chooses a reasonable level of investment risk and who helps them plan for their future financial needs. Unlucky Canadians get a salesman dressed up as a financial advisor who sells expensive products without properly explaining the hidden fees.
The sensible way for most people to invest their savings is with broad diversification and low fees. If you plan to use a financial advisor, look for someone who helps you make a plan, explains costs clearly, and chooses a reasonable level of risk for your situation. If instead you go looking for a hot-shot advisor who promises future riches based on soundly beating the market, you’re likely to be very disappointed.