There is a famous saying “Too many cooks spoil the broth”. What does this saying mean? Listening to too many advisors before making a decision is definitely a bad idea.When money is involved, bad advice can prove very costly.You never do anything without taking the advice of at least 10 friends…More the number of advisors, better is the advice. You live by this motto.How do you know if your friends have your best intentions at heart, while dishing out advice? Then what about all that unsolicited advice you get from bank executives, stock tips from friends and family and so on. Is all this advice good for you?Can you trust your hard earned money to all this advice?
You go to the bank, planning to invest your money in a fixed deposit.Mr Ramesh a friendly bank executive, advises you to take up an endowment life insurance plan. He tells you…Avail this life insurance plan. Your life is not only insured, but you also get your money back on maturity of the plan. Then there is a bonus for you….Yes, Endowment life insurance plans give you a bonus. You’re tempted to take up an endowment life insurance plan.
Stop and think…Why is this bank executive Mr Ramesh giving me this advice? Is he my true friend or does he stand to gain from giving me this advice? Banks get good commissions from Insurers if they push insurance plans to their customers. This task is assigned to…well you guessed right, the bank executives who are pushing you to buy the life insurance plans.Mr Ramesh is one such executive. He wants you to buy an endowment life insurance plan. Mr Ramesh has targets which he needs to achieve to get commissions and maybe a promotion. The bank might even tell him… If you can’t sell life insurance, you might as well pack your bag. Mr Ramesh is not your friend giving you good advice.
Mr Ramesh has a target to achieve and save his job. He is concerned about his skin and not yours. He is ready to sell or mis-sell life insurance or any other financial product to you. Mr Ramesh is not concerned if you lose money or buy a financial product which does not match your needs.Worse…Mr Ramesh might not be in this bank a few years later, if you face problems with your life insurance plan.
SEE ALSO: Types Of Credit Cards
You love stocks. You simply must invest in them. You have opened a demat and trading account with a bank. This bank also offers you advisory services. You have bought stocks of many reputed Companies in large numbers. You own 100 shares of your favorite Company XYZ Ltd. Each share costs INR 700. Current value of your total holdings in XYZ Ltd is INR 70,000.
One day Mr Suresh an executive of the stock broking services of the bank, gives you a call. He asks you to sell XYZ Ltd telling you, this stock is soon going to crash. Why don’t you sell quickly and book profits when you can? You are panicky…You just don’t know what to do. You want to get rid of the shares of XYZ Ltd in a hurry. You sell all the 100 shares at around INR 700 each. Guess what…3 months later the price of XYZ Ltd is INR 1000.You have lost a potential profit of INR 300 a share. This translates to INR 30,000 more, if you sold 100 shares now. This is not a small amount to lose. You contact Mr Suresh and he tells you…Stock decisions are at the sole discretion of you, the investor.
Time to remember this saying. Bulls make money, bears make money, pigs get slaughtered. If you are greedy or fearful, executives like Mr Suresh will exploit you. When the stock market rises…Mr Suresh says “Buy now or risk missing a golden opportunity”. When the stock market falls…”Run away before it is too late”.His goal is simple...Make you buy and sell shares and real quick. You have to pay brokerage fees every time you buy and sell. Mr Suresh is not bothered whether you make a profit or not. All he wants is you buy and sell shares. Mr Suresh has a brokerage target, which he has to achieve each month. He will do whatever he can to achieve this target.
Following the group…Following the crowd…This is the herd mentality. The popular belief is that decisions made by a large group of people, can never be wrong. Let’s understand the herd mentality through a simple example.
Your friend Naresh advises you to invest your hard earned money,in a corporate bond of ABC Ltd. He tells you…Don’t worry…Many people including Harish our mutual friend, has invested in the corporate bond of ABC Ltd. What does your gut feeling tell you? You must check the ratings of this corporate bond, before you invest your hard earned money in this bond.What do you do? Simple…Suppress this gut feeling. Naresh can never be wrong…Harish can neverbe wrong…Crowd can never be wrong. Unfortunately this corporate bond of ABC Ltd defaults on interest payments. You , Naresh, Harish and several investors are worried, if you will even get back the principal amount you have invested. You have fallen for the infamous herd mentality. Warren Buffett says "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." Never ignore your gut feeling and follow the crowd, when you invest your hard earned money.Take financial advice from family and friends with a pinch of salt and do your research, before making an investment.
Hunted by too many biased advisors? The team of wealth doctors at IndianMoney.com is always there to help and guide you. You can explore this unique Free Advisory Service just by giving a missed call on 022 6181 6111. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice / education to ensure that you are not mis-guided while buying any kind of financial products.
This is to inform that Suvision Holdings Pvt Ltd ("IndianMoney.com") do not charge any fees/security deposit/advances towards outsourcing any of its activities. All stake holders are cautioned against any such fraud.