Yesterday, a journalist writing for a financial magazine asked me this question:
What are the biggest ways Australians waste money when it comes to their finances?
Here’s my answer:
Regularly, I’m asked:
How do I check if my investment advisor has given me good advice?
How is your investment portfolio performing against the index (or average) of the markets in which you are invested?
And in my experience, the majority of people I ask tell me that they don’t know.
There are other factors that determine good investment advice besides performance. But it surprises me how many intelligent people don’t think to check the performance of their portfolio against the average market return. Especially when they’re paying an advisor a fee for investment advice.
An advisor without an investment philosophy is like a boat without a rudder.
If your advisor doesn’t have a convincing, evidence-based set of beliefs about the markets and how to invest in them, then you risk drifting from one idea to another.
An inconsistent investment approach is a common cause of capital loss.
An investment philosophy should inform an advisor’s decisions about your portfolio, so it’s important you not only understand and agree with their values and ideals, but that you can see evidence of a logical basis for making decisions about your wealth.
If your advisor recommends an investment strategy that doesn’t fit your values or view of the world – and that bothers you – then it’s not the right strategy for you.
My investment philosophy follows: