I keep losing money investing in stocks and cryptocurrencies. And I paid for the tips that gave me the information I used to do this. For example, I was told to buy SoFi and I lost money the whole time I was investing in it. What can I do?
I can hear your frustration overflowing from this question. And I get it. After all, what’s the point of paying for financial advice if you’re not going to make any money from the guidance you receive?
But before you fire your financial advisor (and you might want to after reading this), it’s important to review reasonable expectations about what a financial advisor can guarantee, how to avoid scams and bad actors, and what to expect when it comes to losses in the market and profits.
A financial advisor can help you understand the pros and cons of certain investment decisions.
What professional financial advice can do for you
It is important to note that no financial advisor can predict the markets. Sure, advisors can use charts and historical models to make educated guesses. But you should view most claims of guaranteed investment returns with a healthy dose of skepticism. Individual stocks and cryptocurrencies carry a lot of risk, no matter who tells you to buy them.
Instead, what a great holistic advisor can do is help you formulate a financial plan that will weather market downturns and reduce exposure to risky or speculative financial products.
This financial plan may include stocks that, from time to time, lose money. It could even include investing in cryptocurrencies that are only a reasonable portion of your portfolio (read: money you’re willing to lose). But your funds should be diversified and placed in different buckets that allow your money to survive market downturns without bankrupting you.
For this assistance, you will typically pay a fee, often around 1% of assets under management (AUM). Alternatively, you can pay an hourly rate or a per-project fee based on your deal structure.
The importance of finding a fiduciary
When finding a financial advisor, I usually recommend working with a fiduciary. This is someone who is legally bound to act in your best interests.
There are a few quick ways to determine if you are working with a fiduciary financial advisor. Certified Financial Planning Professionals (CFPs) must be fiduciaries. Advisors included in the SmartAsset platform are also fiduciary advisors. You can also ask when interviewing potential financial advisors if they are fiduciaries and if they act in that capacity at all times.
I love sharing this information because anyone can call themselves a “financial advisor,” even someone selling risky financial products on YouTube or selling shares of an investment on Facebook. If you receive advice that you feel is inappropriate, consider who you are receiving it from and whether the person should be acting in your best interest when making this recommendation.
Detect fraud and scammers
While it’s not necessarily bad form for an advisor to recommend or pick individual stocks, I wonder if those options were clearly presented to you. Financial advisors can’t protect you from all market losses, but they should recommend investments that complement your overall portfolio and caution you against overexposure to certain assets.
Any advisor worth his or her salt is not going to tell you to invest more than you can afford in a cryptocurrency or security.
Checking a counselor’s record for disciplinary actions or complaints can help you get a sense of where bad actors are in the field. Some ways to vet your financial advisor include:
Use FINRA’s BrokerCheck. Enter the name of an advisor or firm into BrokerCheck, a free tool that will provide you with arbitrations and complaints, licensing information, and regulatory actions.
Use the SEC’s Investment Adviser Public Disclosure. This tool, which is linked to BrokerCheck, also allows you to view information about an investment advisor and their business activities.
Check their credentials. Licenses like Series 7 allow advisors to sell securities. In addition, CFPs and chartered financial analysts (CFAs), for example, must pass a series of educational hurdles and adhere to professional standards.
Can your financial advisor protect you from market losses?
Short answer: No. A financial advisor, even a smart investment manager, cannot guarantee that your portfolio will always be in the black. Unless you’ve thrown your money into a few savings accounts or certificates of deposit, you’re likely riding the market’s gyrations, no matter who’s giving you investment advice.
Some things a counselor can do include:
It helps you design a diversified investment strategy with a risk profile that matches your investment time horizon and risk appetite.
Help put money into “buckets” for short-term, medium-term and long-term goals.
Recommend investments or strategies that can help you achieve your financial goals.
They give you the freedom to play with money in individual investments. But a good advisor will encourage you to only “play” with money you can afford to lose. Many advisors recommend that cryptocurrencies, for example, take up no more than 2% to 5% of an investor’s portfolio.
Paying for advice does not guarantee that you will avoid all market losses. However, if you feel uneasy about how these investments were presented to you and how they were described, it’s worth checking your financial adviser’s credentials and making sure you’re dealing with someone legitimate.
If you have questions about your investment and retirement situation, a financial advisor can help. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three financial advisors serving your area, and you can interview your advisors at no cost to decide who is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If your investments pay off, you may owe capital gains tax. Work out how much you’ll pay when you sell your shares with our capital gains tax calculator.
Susannah Snider, CFP® is SmartAsset’s financial planning columnist and answers readers’ questions about personal finance. Have a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Susannah is not a member of the SmartAdvisor Match platform.
Photo: ©Jen Barker Worley, ©iStock.com/Jirapong Manustrong, ©iStock.com/Viorel Kurnosov
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