How to make the most of investing advice?

What is it?

Investing advice is part of an investor's decision making process when looking for options to invest.

The investor relies on research and information compiled by an advisor to find the best matching financial strategy and solutions for his or her personal circumstances.

Accordingly, our definition is:

Investing advice is an investor making use of the expertise of a financial advisor to assist him/her with the preparation of personal investment options.

Many online news articles and the press bluntly disregard the core of this definition which is the focus on YOU, the investor. At closer observation of the daily news we find many biased commentators recommending investments that sometimes turn out to be their own investment products. Others may just briefly state, for example: "Buy BHP shares today because they're cheap." In most of these situations, there is little substance as to the reasons behind these recommendations and they are far removed from proper investing advice.

That's the reason why serious investors turn to the professional press such as the Australian Financial Review or stock reports that are available for subscription. Of course, these deal with general advice only which looks at investment options without taking into account the investor's specific situation. However, general advice news tend to be better researched and documented and are based on the opinions of a financial analyst or economist.

But again, one has to ask the question what is the motivation of the writer to produce his article or newsletter?

General advice information can be valuable but it is no substitute for personal investing advice. As an investor you'd want to know:

• Where do you stand financially and how can you improve?
• What can you gain from investing?
• How should you invest and what are the options?

The best investing advice

The best investing advice an investor can get is personal advice by an experienced financial advisor or financial planner. Yes, I'm biased too but why here is why?

Because there must be a preceding dialogue between the advisor and the investor on the investor's personal financial situation such as the current wealth position, money management practices and control, past investment experiences and the investor's specific goals and desires. Investing advice is primarily about the investor and second about the product. A product is just a means to an end when it's time to place the investment dollars.

Investing is an elaborate process of research and analysis that leads to a decision to allocate your investment dollars to financial opportunities for a gain of income or value growth. It is not about betting where the market might be going, rather it is the investor making an informed decision about managing and increasing his wealth in any market by buying investments that have the potential to deliver.

This is a detailed process that produces financially sound strategies and beneficial solutions through which investments can be made. At the end of that process investment products will be considered and investment advice turns into product advice.

Personal advice or product advice?

Personal advice is about the investor and product advice is about investment products. Both are elements of investing advice. Unfortunately, investment products are often sold for the purpose of finding a buyer. History shows what disastrous consequences a product only approach can have. One fit all investment products were used in the recent past by reputable financial planning firms, e.g. Storm Financial and others, who in fact should have know better that the investor is first and not the product.

There is also a fine line between investing advice from an advisor that belongs to a major financial institution and one that doesn't. This is not irrelevant today because banks and investment houses take over more and more financial planning firms.

Did you know that the vast majority of advisors in Australia are owned by large corporate businesses?

As an analogy, what would you get if you walked into a Hyundai car dealership and wanted to know what's the best car for your situation? - A Hyundai, of course!

So beware if you're talking to financial advisors that belong to big firms. You may have locked in your options already and are most likely to end up with their own products.

Alternatively, it seems a good idea to get investing advice from advisors who's business does not belong to one of the major financial institutions. That will open up your options immensely. You'll have access to investment products across the entire financial industry with all the major product manufacturers included and compared. You will not only get better choice but will end up with better solutions too.

Why invest?

Investing advice is the process of the investor working with an advisor to research potentially beneficial investment options that provide a result towards the goals of the investor. Not only will this be based on the investor's goals and objectives but it takes into account the current financial needs, means and investment experiences of the investor.

Depending on those an investor might be more or less aggressive in his approach to investing. Proper investing advice will take this into account.

Why do we invest? - Because we believe a financial gain is possible!

Before investing a seasoned investor would discuss with the advisor his or her:

• investment goals and expectations
• approach to diversification of risks (Source: Russell Investments)
• investment time horizons (Source: Vanguard Investments)
• worst case and exit scenarios
• market beliefs and convictions and
• his/her comfort zone

Note these invaluable fact sheets from Russell Investments on risk diversification and Vanguard's Index Chart 2010 showing the relevance of time when investing. Follow the corresponding links in the above bullet list.

The investor's personal situation is then matched with strategies and solutions available in financial markets. Good investing advice will gauge the investor's opinion and beliefs about the current and future state of markets too. If the investor is unsure the advisor will assist in forming an opinion and conviction.

At the end of the day, all the research done will translate into an investment strategy ready for investment.

How to invest?

The investment process resembles very much a decision making process assisted by a financial advisor or financial planner giving investing advice up to the point where the investor then makes a selection.

The process is as easy as 1 - 2 - 3:

1. Research & Planning
2. Investment Decision
3. Implementation & Monitoring

We've detailed these process elements and put them into the following step-by-step guide:

1. Research & Planning

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• Goal setting - For example, I'm looking for an investment that generates ongoing income of about 5% on average for the next 5 years. But it is also an objective to say, for example, that only 50% of existing cash savings shall be used for the purpose of investing because the other half is required for ongoing living expenses.
  
  Goal setting is all about needs and objectives, expectations of returns and investment time horizons.
  
  
• Analyse current finances - The investor's current financial situation must be clarified as much as possible. It will show how much savings are available for investing and how much money is employed elsewhere to pay daily bills.
  
  Investing advice will consider this and make sure an investor does not overcommit. Even life insurance might be relevant in that context.
  
  
• Risk profiling - This relates to an investor's past investment experience, the willingness to expose his savings to risky or less risky types of investments and his general attitude towards minimizing the overall risks of his investment portfolio.
  
  
• Researching strategies - Strategies have intrinsic values. In other words, they define the way you invest and can provide additional financial benefits. This is one of the key areas where investing advice from an advisor is priceless.
  
  For example, if you were a couple with each of you on different marginal tax brackets the valid question is: Whose name should you invest in and how much?
  
  The advisor will then consider this and strategize the best possible outcome. Similarly, an investment strategy will be based on a chosen approach to portfolio construction.
  
  For example, should the portfolio consist of a single asset (e.g. real estate) or multiple assets (e.g. managed funds).
  
  
• Researching solutions - Investing advice includes the preparation of recommendations to the investor once strategies have been identified. Solutions then deliver the underlying structure for one or more products.
  
  For example, the strategy says you'll make salary sacrifice contributions to your super because that's giving you a tax benefit. Investments will then be made with super moneys instead of personal assets. The solution is to structure your super moneys so that the right investment can be made, e.g. into direct property.
  
  
• Comparing investment solutions and products - There might be several investment solutions and products that can be used for a particular strategy. Investing advice will identify and compare them so that the investor gets all the necessary information to make an informed decision.
  
  E.g. comparing the cost structure of a wrap platform A and its investment options with wrap platform B and another menu of investment options. In this example, the different wrap platforms are solutions and the menu options within are investment products.
  
  
2. Investment Decision

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   It is then time for the investor to make the well researched decision and pick the solution and investment option he or she is most comfortable with.
   
   The investor might ask a few last minute questions to the advisor whose investing advice will point out the benefits, advantages and disadvantages of each possible option. The advisor will assist the investor in finalizing his conclusions and a decision is made.
   
   
   
   
   
3. Implementation & Monitoring

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• Implementing the investment strategy - Good investing advice will also outline a plan on how to implement the investor's investment decisions.

  In fact, many of the more sophisticated solutions are only accessible through advisors and the implementation plan is normally available at decision time too. The advisor will address the investor's questions until the investor is fully comfortable with the investment process of the recommended strategies, solutions and products.
  
  

• Monitoring the investment - Investing advice doesn't stop with research and implementation. It will also guide the investor on his/her journey to discover financial freedom by reviewing how investments are performing, making an assessment if initial expectations and goals have been met.
  
  Investing advice will assist in identifying new opportunities along the way at which point in time the process starts all over again.

Investment Research

Financial advisors draw on a myriad of sources to collect and filter out relevant information for an investor. The advantage of having an advisor is that many of these sources and methodologies can be made accessible to the individual investors which otherwise are only available to institutional investors. This is another big benefit of getting investing advice.

As you would expect, Investor Research gets first mentioning in the following list. Financial planners know this as the Know Your Client Rule. Even if you do your own research make double sure you first get a factual view on your personal financial circumstances and the type of investor you are.

Mostly however, it pays to engage a financial planner to do this because you'll get feedback from someone else who will produce an undistorted mirror image of you and your finances which indeed might look a bit different than you thought. Again, this is a key value of investing advice. You can read more on our separate importance of financial planning page.

Research sources and methodologies

Your financial freedom

Investing is the act of partaking in financial markets where money can make money. There are countless markets where an investor can participate and countless strategies and solutions including investment products that help you gain exposure to individual markets.

A professional adviser who's in the field every day can assist you if you're serious about taking the sting out of investing.

His or her investing advice will be tailored to your goals, needs and circumstances. An advisor can tap into these different markets and create strategies and investment options that will give you a roadmap to discover financial freedom.

We always welcome feedback from our readers and if you want to find out how this can benefit you let us know by following this link and we'll be pleased to help out.

More information:

Money Making Ideas
Investing for Dummies
Types of Investments
Money Converter
Bonds
Tax Refund
Investment Calculator

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