Thursday, November 15, 2012

My Best Financial Tip

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 of 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.


  1. @Mandy: If I were an advisor who could avoid stock market downturns, I'd quit being an advisor and run a hedge fund with big bonuses for avoiding stock market drops. I'm sure there are many prophets out there who are bearish and others who are bullish. What they have in common is that they don't really know what will happen.

  2. I'm new to the whole investing in Canada since I moved here. Our advisor seems to answer all our questions but we certainly don't expect him to perform miracles. We've gotten discouraged when our portfolio goes down but after running numbers today we realized we have done pretty darn decent the past couple of years.We would like to learn how to do some investing on our own but until then our advisor is leading the way for us. Great Mr.CBB

  3. @Mr. CBB,

    Hopefully your luck will continue. It's important to have an idea of what is a good result. You should be comparing the stock part of your portfolio to an appropriate index. The same is true with the bonds. A 5% loss may be quite good if the market went down 10%. And a 20% gain isn't so good if the market went up 30%. Everything is relative.

  4. best tip is Michael's words to Mandy...."What they have in common is that they don't really know what will happen."

  5. Here's the the pay big bucks to have someone else look after your money ,because your doing something else. So they can't see a downturn any better then you .So stop paying the big bucks ,an get a fee only advisor,just like you do for a lawyer or bean counter .

  6. @Sustainability Matters: Gald you liked it.

    @Anonymous: I think you're right that many people wold be better off with a fee-only advisor. At least then they would see what they are paying and could decide whether they were getting their money's worth.

  7. Works almost the same way for the housing sector. You can't get someone who offers to help in fixing someone's problems with home loans in massachusetts or any other state; they'll lend a hand but a lot still relies on you.