If you don’t live under a rock, you’re probably familiar with all the social media platforms. Influencers have become the new face of advertising and are geared to inspire our purchases. Like my Uncle Ben always tells me, with great power comes great responsibility.
People need to be careful what they get you to buy. If it’s a bad product with terrible reviews, their credibility is ruined. The same should be said for these finance influencers. Those kids on Tiktok telling you what stocks will 10x overnight and make your rich. Those people that are hanging out on private jets in pictures and bragging out GameStop or Dogecoin investments are not to be trusted.
Telling anyone what stocks they should buy or how Bitcoin is the new 100x opportunity is not good financial advice.
So, what is good financial advice? It’s when your entire life situation is taken into consideration. Recommending a stock or asset as a one off is not smart advice. Here are the 5 things only someone offering good financial advice would recommend.
Understanding Your “Why”
Before any portfolio recommendations or advice is given, understanding your why is most important.
Why do you want to invest your money? Do you have specific goals in mind? Do you want to retire early? How much money are you going to need?
Understanding your “why” behind your decision can greatly impact what investment strategy will be suggested.
Financial goals should dictate how you save or invest your money. Good financial advice should align with your future ideal life and take steps to help you reach that life. Those offering advice should understand what it takes to live a meaningful life and go beyond just a specific number to get there.
Asset Allocation
All your money should under any no circumstances be thrown into a single asset class. It needs to be properly allocated across many different investments. Focus on a more diversified portfolio for better stability.
Financial advice should not be telling people what stock to buy. There should be no buying Bitcoin or the typical, “buy low sell high” advice. Financial advice needs to encompass a lifetime not a choice.
If you’re young, recommending a portfolio with slightly more aggressive investments could be considered decent financial advice. Sharing a breakdown of stocks and bonds allocations is the way to go.
Those going all in on Bitcoin don’t understand the long-term risks involved. Sure, Bitcoin could reach $1 million per coin in the future, but you really just don’t know. All your money should not be gambled in this way.
Allocating 5%-10% of your entire portfolio to this type of volatile asset would be a wiser choice. That is after you accommodated that risk tolerance in decreasing your risk in other assets.
Your overall risk tolerance and portfolio breakdown should all be considered when giving financial advice.
Insurance Needs
The not so glamorous insurance talk. We don’t live forever, and we won’t always be healthy. It’s the harsh truth and something we need to accept. Those that give good financial advice should also be taking your insurance needs into consideration.
Like I said, good financial advice encompasses your life, not just a single stock or asset. Finding good life insurance is included in shaping a future you may want.
Financial Products
Any good financial advice wouldn’t be complete with financial product recommendations. These include what index funds to invest in and at what percentage.
Financial advice is not about the right stock. It’s shaping a life and the choices involved in that. Those on Tiktok don’t say, “get rich fast with index funds.” They tell you AMC stock may be getting shorted and to throw all your money in it to maybe make bank.
If you are going to give financial advice, be smart with your recommendations. Gambling isn’t investing and should never be encouraged.
Tax Mastery
You would be surprised how little I knew about taxes. After speaking with a more financially literate family member, I understand some of my investments weren’t the best choice to take advantage of tax incentives.
That is good financial advice. I was proud in my portfolio and the investment choices I had built, but it could still be improved. He saw I was building a solid portfolio and knew the goals I was working towards.
He recommended a slightly higher percentage of bonds in my portfolio, focusing on more treasury bonds, since they are exempt from state taxes.
If you are going to give financial advice, you should understand the tax implication of your investments and how best to navigate through life.
Some investments offer better tax incentives, while others mean you may have to pay more taxes. It’s a complicated system I admittedly know very little about and need to do more research.
That’s why it’s so important to only take advice from someone who would fully understand the ins and outs of taxes.
Final Thoughts
How many times did I say financial advice? My bad. You know how excited I can get about money topics. But the one thing that always bothers me are these kids giving terrible financial advice on social media platforms.
They encourage gambling on speculative stocks and aren’t shy to show you their big bank accounts. It’s my pet peeve and I can’t stand seeing it.
Building a solid portfolio for your life is what’s more important. Following the 5 topics I mentioned above should always come first. Those gambling antics will come and go, but only those who focused on smart investing will last.
I guarantee you won’t see those kids in the future. Gambling is not a long-term plan. If they made good money last month, it won’t last. They are bound to lose it all if they continue going down that path.
Having proper risk tolerance in your portfolio will maintain a solid return during your lifetime. Who you going to trust? Some kid or someone named Mr. Cents?
