Financial Advisory
Evaluating financial advice
It is important to note that not every financial advice is good financial advice. The decision on whether to act on the availed financial advice hence largely depends on a number of things including but not entirely limited to a careful evaluation of the quality of financial advice being availed to an individual. To begin with, it is important to note that the professional as well as other academic qualifications of a financial advisor are paramount.
This includes the professional bodies the financial advisor is affiliated to. Currently, some of the most respected financial advisors in the marketplace are holders of the CFA designation issued by the CFA institute. The track record of a financial advisor is also important when evaluating the quality of financial advice one is receiving.
According to Bernstein (2010), an investor must always seek to know how the financial advisor gets paid. In his opinion, advisors whose charges are commission based are more likely to advise you to invest in commission paying investments i.e. insurance products as well as mutual funds that are managed actively. However, when your account size is the main determinant of the charges, the financial advisor may have an incentive to shepherd you away from other investments i.e. annuities no matter their probable returns.
The difference between an investor and a speculator
There are many differences between an investor and a speculator. The main one however is the period in which either is prepared to hold on to an investment. For an investor, the outlook is long-term while for the speculator, the outlook is largely short run. For instance, in the stock market, a speculator is more likely to act or respond to occasional price fluctuations more that the investor.
Because his outlook is long term, the investor is hence more likely to analyze all the fundamentals of a given company or otherwise before investing. However, the speculator largely depends on the probability of making quick gains and hence he or she may not carry out an intensive analysis of the investment before investing.
References
Bernstein, W. (2010). The Four Pillars of Investing: Lessons for Building a Winning Portfolio. McGraw-Hill Professional
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