Why do financial advisers always tell you to invest?
“Buy a stock the way you would buy a house. Understand and like it such that you’d be content to own it in the absence of any market.” – Warren Buffett
One of the keys to a successful and rewarding life is to appreciate the finer points of money management. Unfortunately, this is sometimes easier said than done. To “err” is human and there is no doubt that we all make mistakes from time to time. This is why the presence of a financial adviser is always a good idea. These professionals are able to offer up timely advice so that we can avoid any pitfalls while simultaneously increasing our liquidity. One of their most common suggestions is to become involved with investments. Assuming that they are not trying to “plug” a specific share, fund or product for their own benefit, why might advisers highly recommend investing? Let’s take a look at a handful of important takeaway points in order to appreciate the bigger picture.
The most obvious advantage of investing is that you will be provided with the ability to supplement your existing income, now or in the future. After all, the annual interest associated with a standard savings account is hardly impressive these days in most cases. Prudent investors with experience can potentially enjoy returns as high as eight per cent (and of course more) in the many years they invest. This is an excellent way to establish a solid and dependable “nest egg” for the future.
Enjoying the Online Edge
The good news is that investment platforms now provide you with instantaneous access to the global marketplace. Perhaps even more importantly, they have been designed with a user-friendly edge in mind. You are provided with a host of utilities and tools such as:
- Live complex data.
- Advanced charting capabilities.
- Countless assets to choose from.
- High rates of return (& loss potential).
- Transparent charging structures and fee schedule.
Let’s also point out that the majority of platforms can be accessed via dedicated smartphone applications. You, therefore, have 24/7 access to important data regardless of where you might be physically located.
A Host of Assets to Choose From
The investment market is associated with a veritable kaleidoscope of opportunities and each of these is geared towards the interests of the individual in question. For example, those who are embracing a conservative approach will often consider long-term holdings such as precious metals, corporate bonds and blue-chip stocks/funds. Those who prefer more liquidity (such as day traders) might instead gravitate towards the Forex marketplace or become involved in contracts for difference (CFDs). The main takeaway point here is that there is indeed something here for everyone. A handful of examples include (but are by no means limited to):
- Exchange-traded funds.
- Index-based holdings.
With so many varieties to choose from, it is clear to see why financial advisers are optimistic about the world of investing.
Returns Based Around Your Requirements
This next observation can be tied directly to the facts mentioned in the previous section. While some invest as a hobby and others pursue this profession on a full-time basis, the goals are always the same. They invest to make money/a return. However, short-term profits (such as those associated with currency/FX relationships) are much different when compared to long-term returns. As a general rule of thumb, short-term gains are often associated with a much higher degree of volatility/complex risk. Longer-term holdings tend to be much more stable and predictable over time in regards to their returns. The only possible trade-off here is that such conservative holdings might not offer extravagantly high returns.
This is normally why financial advisers stress the importance of a balanced portfolio. The primary purpose of a portfolio of holdings is to provide an appreciable rate of return even if a specific asset class happens to fall upon bearish times. In other words, a single loss can often be offset by gains in another sector. Here is a rather broad example of a balanced portfolio:
- Corporate Bonds
- Structured Products
Even if a high-risk position (such as a sector or territory) happens to take a loss, the investor will be limiting his or her risk exposure by the other assets contained within the portfolio itself.
A Hedge Against Unpredictable Times
Any experienced financial adviser appreciates the fact that no one truly knows what the future may have in store. This was clearly illustrated in the number of individuals who were caught off guard during the 2008 financial crisis. This is why hedging against an unpredictable marketplace is important. Investing is an excellent way to provide yourself with a financial “buffer” should negative circumstances come to pass. Also, a sound portfolio will provide you with a greater degree of liquidity later in life as opposed to constantly fretting over the cost and impact of your retirement.
We can therefore see why financial advisers will often tout the advantages associated with the world of investing. Many likewise offer dedicated services based on the needs of the client in question. This is a great way to get a “foot in the door” and to enjoy appreciable returns as opposed to leaving your funds within a stagnant savings account. After all, it is always better to work smart as opposed to hard. Investing will provide you with this enviable ability.
About Mike Coady
Mike Coady is an expat expert based in Dubai and is on hand to help with all of the above and more.
Mike is an award-winning money coach and industry leader in the financial sector.
Qualified to UK Financial Conduct Authority (FCA) standards, a member of the Chartered Insurance Institute, a Founding Fellow of the Institute of Sales Professionals (FF.ISP), and a Fellow of the Institute of Directors (FIoD) and featured as a highly qualified Financial Adviser in Which Financial Adviser.
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Blog published by Mike Coady.