As a new investor, you want to make all the right moves, and 'get it right' the very first time. So you plunge into an ocean of financial news, watch Warren Buffett interviews, and even read Rich Dad, Poor Dad from cover to cover for inspiration. But is that enough? Very often, the most important thing a rookie investor can do is talk to an expert.
So who exactly is an expert? It could be anyone who is professionally trained in the principles of sound personal finance management, or has a specialised knowledge of different instruments. This could be a financial planner, stock broker, wealth manager or mutual fund distributor—anyone who does the job full-time and provides clients with customised investment advice.
It is not just novice investors who turn to these experts for help; even experienced or affluent investors usually have people advising them on where and how to invest. If you're starting out and are feeling nervous, here's why it makes sense to get professional advice.
'Going it alone' is hard
Just like it's very hard to become an athlete or a entrepreneur without anyone else's help, a self-taught investor operating completely alone will face several challenges. Understanding the complexity of the markets, the nature of financial instruments, and the risks you are exposing yourself to is much easier when you have someone to hand-hold you, at least initially.
Objectivity is important
Given how hard we work to earn money, it's not surprising that we want to enjoy it. However, this can also sometimes lead to poor decisions. Objectivity is a key trait of disciplined investing. A good expert will help you see your financial goals objectively, and make decisions that are not driven by emotional impulses. It also helps you curb inadvertent wasteful or counterproductive financial habits that could do you harm in the long run.
It's often convenient
Investing can often mean a great deal of research and paperwork. For those who have busy schedules and cannot devote themselves to managing their investments themselves, having an advisor is valuable. The advisor would do the research on your behalf, and handle many of the routine tasks associated with investing. In addition, he/she would review performance reports and give you a summary of the information you need to know.
Trial and error can cost you
Given enough time, you could figure out what works and what doesn't. However, when there's an expert around, you don't need to go through an extended learning curve. He or she can help accelerate your knowledge and avoid mistakes.
Now that we've seen the importance of working with an advisor, let's address the next big question: how do you choose a good one?
It is important to choose an advisor with a good track record. A good way to find someone like that is to ask family and friends for referrals. If the advisor has a website, read up on him/her and the services offered. If you're not convinced that the person has the requisite qualifications, experience or reputation, keep looking until you find someone who does.
If your advisor is trying to hard-sell a product that you are not convinced you need, consider the possibility that he/she isn't for you. Instead, you can approach someone who doesn't represent a specific company or service.
There are different kinds of financial experts out there. While mutual fund distributors do not charge for their services, financial advisors do. If they do charge you money, ask about their cost structure at the beginning, and see whether that fits your budget. Some advisors prefer to work with high-value clients, and may be outside your price range. Do your homework and find someone who caters to new investors, and is willing to work closely with you to achieve your goals.
Mutual funds are a great idea for first-time investors. When you invest in a mutual fund, your money is managed by an experienced fund manager who takes decisions to grow your wealth in line with your sector preferences and risk appetite. To know more, check out the recent 'Mutual Funds Sahi Hai' campaign by The Association of Mutual Funds in India (AMFI).
Mutual fund investments are subject to market risks, read all scheme related documents carefully.