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Free Financial Advice: Why Pay If You Can Get It Free

27 Dis 2021

Free Financial Advice | Money Money Home | VI

There's a reason many people don't pick up a book or go to a seminar to learn about investing. Most of the time, it's either they don't find the whole idea of spending money to acquire financial knowledge worth it, or they find it to be incredibly boring.

So what do they do? They take the easy way out. They go around collecting any free financial advice they can find. Friends, family, newspapers, websites – you name it, they've been there.

And while this may work out for some people, this doesn't pan out most of the time and result in losses. That's the reason why a lot of people fear investing. They've started on the wrong foot, stepped in the wrong direction, and in the end, didn't want to do it at all.

"Free" advice can only get you so far

Yes, free financial advice is great.... at the start. But it can only get you so far.

A basketball player cannot learn any defence skills or new tactics without playing with the other players. A businessman who wants to grow his business successfully will have a hard time doing it without advice or exchanging business ideas with other businessmen.

To be great at investing, you must also gain the right knowledge and look for a community with the same goals to grow together in the same direction.

Make no mistake though. When we say "community," we don't mean the kind that is rampant at the moment, where a group of people buys and sells their investments based on their "leader's" portfolio. Most people who do this don't know what they are doing and they're just going in blind, and that is incredibly risky.

Instead, investing should be done progressively; the first step being investing in yourself and getting the right knowledge. Once you've established your investing style and you can go in knowing EXACTLY what you're doing, you then find a community to grow together. 

There are, however, people who choose NOT to do this whole process themselves. Some find it too time-consuming; others find it too cumbersome and choose to take alternative routes instead.

What about financial advisors?

Free Financial Advice | Financial Advisors | Money Money Home

In principle, a financial advisor helps you do these three basic things:

  • evaluate your financial situation and help you reach your financial target
  • help you plan your finances for retirement, investments, insurance, et cetera
  • recommend investment strategies, products, and tools

Apart from a comprehensive understanding of the client's financial status, needs and objectives, a financial advisor also helps tailor an investment plan that is within the client's risk appetite.

They would then regularly update you on the performance of your investment portfolio and if they don't perform as expected, discuss your options to help you achieve your financial goals.

It goes without being said that this is the easiest and most convenient option when it comes to investing. There's no need for you to spend time learning, researching, or paying constant attention to market trends and changes.

But yes, there are downsides.

Fees are high... way higher than you would spend acquiring the knowledge and doing it yourself. 

There's also a minimum amount you need to be investing at one time, usually in 5 figures or more, so this is not for those who want to invest in small amounts at a time.

And even with all these, there's no guarantee you would earn.

These professionals may know more than you but still, all investments come with risks. There's no guaranteed "win" when it comes to investing, even in professional hands. 

Or robo-advisors maybe?

Popularised at the height of the financial crisis in 2008, robo-advisory uses Artificial Intelligence (AI) to help investors manage their portfolio – a step forward from the earlier, more "human" option.

The idea behind this is simple. Based on investors' age, financial status, risk appetite, and financial goals, an algorithm performs analyses to provide them with advice on asset distribution and management. Investors would then only need to deposit funds into the account regularly every month, and the system will help them invest in various assets such as ETFs, stocks and bonds, while also making regular adjustments it deems necessary.

Unlike an actual financial advisor though, investors can go into robo-advisory even with investment amounts as low as hundreds of dollars, making it a popular option among novice investors who are just starting out and without investing knowledge.

It also eliminates the influence of emotions (seeing as it is a machine) in investing and minimises sentimental trading on the investors' part.

Sounds pretty cool, right?

Well... yes, except this can also lead to potentially the most horrifying investment loss ever.

True to its name, robo-advisory is self-manoeuvred by AI and your money is left in the hands of a machine. Unlike managing money by yourself, you cannot put your money in and pull them out whenever you deem it necessary. This would also mean, in the event of a crash, you won't be able to intervene and can only watch the losses pile up in your account.

On top of that, robo-advisors are also not able to truly customise an investment portfolio unique to you, but just propose one that is the closest to your needs. Think of them as clothes that you buy from the boutique while a financial advisor's portfolio is like clothes made to your measurements by a tailor. While they can be quite suitable for you, it is not unique to you nor tailored specially for you.

Some free financial advice

There's a saying in Mandarin, "there's no free lunch in the world." Whatever you get for free, will have to be paid one way or another eventually.

While free financial advice may actually be free on the surface, by following these pieces of advice, you're more likely to pay for it in investment losses down the road.

So it doesn't matter how you choose to invest, be it doing it yourself, or using a financial advisor or robo-advisor. The more important thing is to first invest in yourself and your own knowledge so you know what you're doing and possibly avoid major losses.

Watch this week's episode of Money Money Home as the couple gets into a heated (yet hilariously polite) debate and Xianren engages her mysterious friend to help invest her money.

Money Money Home is an edutainment series that takes reference from Malaysia’s TV programme of the same title.

Savings doesn't make you rich but not having any savings will definitely make you poor. Do you have more money management questions you're looking for answers to? Join our free online masterclass on creating passive income for families and for more tips for money management.

DISCLAIMER

This article and its contents are provided for information purposes only and do not constitute a recommendation to purchase or sell securities of any of the companies or investments herein described. It is not intended to amount to financial advice on which you should rely.

No representations, warranties, or guarantees, whether expressed or implied, made to the contents in the article is accurate, complete, or up-to-date. Past performance is not indicative nor a guarantee of future returns.

We, 8VI Global Pte Ltd, disclaim any responsibility for any liability, loss, or risk or otherwise, which is incurred as a consequence, directly or indirectly, from the use and application of any of the contents of the article.