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A financial planner explains how to avoid making a bad investment
A financial planner explains how to avoid making a bad investment
Tanza LoudenbackNov 30, 2016, 00:07 IST
Our friends and family are our greatest confidants. They listen to us, comfort us, and frequently offer up advice - warranted and unwarranted.But there's one type of advice you shouldn't heed - whether it's coming from your best friend, your coworker, or even your mom - and that's investment advice, says Katie Brewer, a Dallas-based CFP and founder of Your Richest Life.Brewer says that just because something has been a good investment for someone else, doesn't mean it will be fruitful for you too, even if you share similar interests or a similar financial situation. Likewise, it's never smart to take investment advice from someone who hasn't even made an investment themselves."I always feel like, generally, if your best friend that has no experience investing told you that something is a great investment ... it just means you need to do your own independent research and not take at face value that it's a good investment," Brewer told Business Insider.As always, if you have preconceived notions of an industry or company, or even a first-hand account from a friend who has previous experience investing in that realm, you would be wise to complete your due diligence.Brewer offered an example:I have somebody that came to me and said 'I have all these people I know that are doing real-estate investing and I think I should be doing it.' And I asked, 'Well who is it that's doing the real estate investing?' She mentioned to me that it's somebody who is already in commercial real estate, that is their career. So their day job is doing commercial real estate and then they snatch up some good deals as they're doing it for their personal portfolio.I asked, 'What's your personal experience with real estate?''I don't have any, I live in a house and that's about it.''Well do you want to do this, do you want to be a landlord, do you want to pay to have a property management association?''No, that sounds like a pain in the butt.'I told her, 'This is something that might make sense for that particular person because it's an area they feel comfortable with, they're picking up good deals as part of their work, but it doesn't make sense for you.'Ultimately, Brewer said, "If your coworker says they're doing X, Y, Z, if your best friend says they're doing X, Y, Z, if your mom says they're doing X, Y, Z, just make sure you actually look at it from a perspective of 'Is this a good investment? Have I done the research on it? And does this actually make sense in my personal financial plan?'"So, the age-old question stands: If everybody was jumping off a bridge, would you jump too? "You don't have to do [it] just because friends and family are saying it's a good investment," Brewer says.
