I want to invest. Who can I trust?

Carry out research for a balanced perspective.

The world of investments can indeed be daunting, especially when you’re not sure where to turn for reliable advice. The question of whom to trust is crucial in making informed and effective investment decisions. While banks and investment advisors can offer valuable insights and options, it’s important to approach these resources with a balanced perspective.

Understanding the role of banks and investment advisors

Banks and financial advisors often have a dual role. On one hand, they provide advice and access to investment products. On the other hand, they are businesses that profit from the sale of these products, sometimes through commissions. This can potentially lead to a conflict of interest where the recommended products might be more beneficial for the institution or the advisor than for you, the client.

Steps to take control of your investment education

1. Educate yourself

Start with basic financial education. Understanding terms, investment types, risks, and rewards is essential. Resources like books, online courses, and reputable financial news websites can provide a solid foundation. Consider resources like “The Intelligent Investor” by Benjamin Graham for an in-depth look at value investing, or online platforms like Udemy for personal finance courses.

2. Seek multiple opinions

Don’t rely on a single source for investment advice. Instead, consult multiple advisors and compare their recommendations. This approach can help you see a range of options and understand different perspectives on what might work best for your financial goals.

3. Use fee-only financial planners

Consider working with fee-only financial planners. Unlike commission-based advisors, fee-only planners are compensated solely through direct fees from clients and not through commissions on the products they sell. This can reduce conflicts of interest, aligning the advisor’s incentives more closely with your interests.

4. Understand the fee structure

Be clear about how any financial advisor is compensated. Understanding whether they are earning from the products they recommend or from the advice they provide helps in assessing the impartiality of their advice.

5. Start small

If you’re new to investing, consider starting with a small amount that you’re comfortable experimenting with. This can help you learn by doing, without exposing you to excessive risk as you grow more confident in your investing skills.

6. Regularly review your investments

Regularly assess the performance of your investments and the ongoing advice you receive. Are your investments meeting your expectations and goals? Is your advisor providing valuable, consistent support? Adjusting your strategies over time is a normal part of maintaining a healthy investment portfolio.

While banks and advisors provide an important service, it’s vital to remember that they are also businesses. By taking an active role in your financial education, seeking unbiased advice, and carefully choosing your financial partners, you can make more informed decisions that align with your personal financial goals. Investing should not be a passive activity; rather, it’s a dynamic process that requires ongoing education, evaluation, and adjustment.

Follow Luca Caruana’s weekly column here, and his LinkedIn account or his Instagram for more budgeting hacks. For other money-related columns, check out Luca’s thoughts about how to make the one-income household work and his advice to couples who argue about money.

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