Biz Brain: Beware investing tips, no matter how well-meaning
Published: Tuesday, August 07, 2012, 6:53 AM
By Karin Price Mueller/The Star-LedgerThe Star-Ledger
Q. I am in my 60s and I’ve never purchased a share of stock. Friends keep giving me “tips,” advice and suggestions, mostly $10 to $30 per share purchases. How would you recommend a virgin investor start?
– Saving it for something special
A. You did the right thing in asking before putting your hard-earned money where your friends’ mouths are.
Save your time because “tips” are generally one of two things – neither of which is good, said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Fairfield.
“Either it is really good inside information that will get you arrested on insider information, or it is the telephone game that has gone through 30 people before coming to your door,” Lynch said. “Either way, I would not use that info.”
While getting recommendations from friends is smart for finding a landscaper, plumber or even a hair dresser, the Brain is guessing your friends are self-proclaimed financial experts with little formal training backing their suggestions.
“Friends always seem to know how to pick stocks, winners of horse races, and they never lose at a casino,” said Douglas Duerr, a certified financial planner and certified public accountant with U.S. Financial Advisors in Montville.
He said if you have never before purchased individual equities, you should proceed with caution. Even the most seasoned and knowledgeable professionals lose money, and well, you’re a newbie.
You should start with the basics.
“Start with mutual funds maybe like an S&P 500 index fund,” Lynch said. “Invest systematically and during all types of market conditions. After you get enough in the account, start to diversify into some other areas.”
To make the purchase, consider using an online broker to limit your overall fees and expenses. Look at E-trade, TD Ameritrade, Schwab and other highly-regarded companies.
“A full service broker would give you more advice but you would pay considerably more for these services,” Duerr said. “I would also suggest you start out slowly with a limited amount of funds. You will not learn better than by investing, but I would limit the amount of funds you do invest.”
Duerr said someone with limited investing experience may want to work with a professional who can help make investments that are appropriate based on overall time horizon and risk tolerance.
Finally, cash is king.
“Make sure you have enough cash so that if there is a problem, you do not need to sell [your investments] at a discount,” Lynch said. “The tortoise always wins.”
—Karin Price Mueller
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