Wednesday, 20 November 2013

How to respond if someone asks you what stock to invest in

I actually re-wrote the title to this blog about 10 times before I settled on what I was going with.  Originally I wanted it to be "No, random stranger, I will NOT tell you what to invest in"...then I realised that it may look like I was saying that to my readers which was not at all what I was going for.  This post is something that almost every professional faces and it's a pain in he backside so I'm going to tell anyone who works in the finance industry how to deal with it.

It drives me nuts when family, friends AND strangers ask me 'what should I invest in?'

Anyone who works in and around finance would know this feeling.  It is a question that gets asked all the time and it's insanely annoying for several reasons

  1. I don't know your financial situation and your risk profile
  2. I don't know how much you know about finance and I'm pretty sure you're mooching off my because you find learning about it boring
  3. There is no way I'm ever going to give you a stock that I'm thinking about...if it goes down you're never going to accept that stock investing comes with risks so I could have been right in my rationale and been wrong in the short or long term
I know it is not only financial professionals who get this.  I imagine doctors and dentists get it all the time - I have seen family members bother others about all sorts of conditions in social settings when it is clearly inappropriate.

What also drives me nuts is when complete strangers ask me what to invest in.  I was recently at my high school reunion and I was chatting to someone who I hadn't seen in a decade who I wasn't even friends with in high school and he asked me what he should be investing in.  At least with family and friends I felt some sort of obligation to educate them a little...with way!

So here is a 'safe' answer you can give if you work in the finance industry

I found a really safe answer when people ask you about what to invest in which isn't going to get you into trouble at here it is:
Whenever someone asks me what they should invest in I recommend they put their money in index funds if they are looking for exposure to the stock market
I point out to them that the value of their stocks can go up and can also go down and that they are not going to get any performance that is better than the market.  It is the type of investment that I do myself and it is something you can set and forget about.

More importantly when you start explaining about index funds and how safe and stable they are...people start to get bored.  It isn't a hot stock tip and it's sensible advice which is never going to get you into trouble.  I have checked and people who followed this advice rarely if every actually went out and bought them (even though it is good advice).  I can almost guarantee you they would have gone out and bought a stock if I had recommended it.

It's actually a great answer because it is a good plan for those who aren't really financially savvy enough to research individual stocks and it is never going to have people hating you at the end because you recommended something that didn't work out.

Try it and let me know how it goes!

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