How To Give Investment Advice (If Somebody Forces You To)

I’ve never exactly blogged anonymously, so it’s only natural people in real life have become aware of my online properties over the years. I suppose it’s also only natural that since I run a personal finance blog, they occasionally ask me for financial advice. I hate it when this happens and I usually try to weasel out of it somehow. Unfortunately, that’s not always possible.

Why I Hate Giving Specific Financial Advice

correct financial advice

Photo Credit: Tax Credits

I enjoy writing about finance because the one-to-many aspect of it means it’s easy for me to keep things general. I can say things like “you should invest in index funds instead of actively managed funds” or “you should avoid most kinds of variable annuities” without reservations because a.) they are generally wise pieces of advice and b.) they aren’t nearly specific enough cause harm were somebody to try to implement my advice.

If you manage to corner me with a “what do you think I should do in xyz situation?” question, you’ll get, at best, a list of options I think you should probably look into. I can’t do any better than that because I don’t know your situation nearly as well as you do, don’t know other details of your financial situation that might be relevant, and most importantly, don’t want to be held responsible if my advice doesn’t pan out!

How To Give Investment Advice (If Somebody Corners You)

Only If Asked

First things first, don’t go around volunteering unsolicited advice! For starters, people don’ t like it – it usually comes across as condescending. Second, you probably don’t know as much about their situation as you think you do. Sure, you may have plenty of opinions and you may even know what you’re talking about. But unless you’re specifically asked for your opinion, keep it to yourself.

Speak In Generalities (You Don’t Know Their Situation)

You don’t know their financial situation. They may tell you part of the relevant details but if they’re asking you for advice, there’s a good chance they don’t even know what details are important to begin with. Speak in general truths, truths that usually valid but that aren’t really actionable without further research on their part. Something like “annuities usually have too many hidden feeds to be worthwhile – you should figure out how much this thing costs and compare it to the alternatives” would probably be appropriate advice for somebody considering an ill-advised annuity purchase.

Give Them The Tools To Figure Out The Answer On Their Own

I firmly believe the best thing you could do for somebody else is allow them how to figure something out on their own. Teach a man to fish, and all that jazz. Instead of berating somebody for purchasing a high-cost mutual fund, send them a few articles explaining the importance of keeping investment costs down. Instead of telling a coworker which funds to buy in their 401k, recommend a good book on asset allocation and tell them to sign up for a free Morningstar membership so they can research the options on their own.

Don’t Be Condescending

Don’t be a douche. People ask for your help because they trust your judgement. Don’t give them reason to regret their decision.

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