Avoid bad financial advice

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A good adviser would have considered many things prior to making recommendations and he must always stick to prudence before anything else

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Radio DJs nowadays play less music and engage in more talk even on the FM band, which can entertain, but can also be annoying when it is overdone. I’ve also noticed that some radio DJs have started to give advice on air. While some are sound advice, some are horrible ones.

As I was listening to the radio a few days ago, I heard a DJ give a piece of advice and she referred to it as “retail therapy.” She said that one way she deals with a “bad day” was to go shopping. Even if she does not need anything, she will set out to buy something regardless of worth, and such an activity will help her through the day. I shrugged in antipathy because the advice was so, well … bad.

I have always expressed that we should seek counsel, especially in matters of finances. Seeking counsel is not only prudent; it is the appropriate thing to do. However, wisdom reiterates that we must also seek sound advice and avoid bad advice.

Many years ago, I once had a lengthy discussion with a financial adviser who always recommends US dollar investments for his potential clients. I engaged the advisor further when I realized that the investment program he was recommending carried quite a low yield. I believe it was like a measly 2 percent per annum compounded over a period of 15 years.

I was curious as to why he often proposed such a strategy and I was baffled by his response. He said the US dollar has historically performed well against the peso and showed me a chart that the average depreciation of the peso was about 8 percent per year. He then said the 2-percent growth added to the 8-percent depreciation of the peso would result to an effective annual return of 10 percent over a period of 15 years.

His mathematics being a bit off tangent notwithstanding, I politely queried about the possibility of the peso depreciating slower than 8 percent and even a probability that the peso may actually appreciate against the mighty US dollar in a span of 15 years. He confidently replied that such a scenario would never happen, citing history and an obvious overconfidence on the US and a discontent for the Philippines.

It was not my place to argue my position. I just gave the adviser a personal advice to consider diversification in his recommendations and to think about other factors prior to making a pitch to his potential clients. Even at the time of the said discussion (the US dollar was still soaring), the argument of the advisor was full of folly, the most dominant of which is the non-consideration of risk factors.

Today, those who listened to the said adviser are now trying to accept the bad decision they have made.

Clearly, they have lost a significant amount in the value of their hard-earned monies. While I do understand that one can’t predict the future, economic or otherwise, sound financial principles such as diversification and asset allocation would minimize substantial erosion of one’s hard-earned savings and precious investments. A good adviser would have considered many things prior to making recommendations and he must always stick to prudence before anything else.

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tiongson_inqRandell Tiongson is a Registered Financial Planner of RFP Philippines. He is one of the most sought after speakers in Personal Finance and Columnist of Philippine Daily Inquirer and Money Sense Magazine. He is best selling book author of Personal Finance Step-by-Step Guide.

Source: http://business.inquirer.net/169850/avoid-bad-financial-advice

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