Joleen wrote this week with a unique situation. She’s a Canadian who has been working overseas in China for the past six years. She has accumulated substantial savings in the local currency, but has no idea what to do with her money. She writes:
I was recently approached by a financial advisor who works for a large international brokerage. He wanted me to think about investing in an offshore account and/or the stock market. I’ve had one meeting with him and I’m still not very clear on what the deal is.
I think there’s a lot I don’t know or understand about the crazy world of finance, but I do know that I should really do something with my money and start saving for my retirement. I have no debt yet, but no real investments of any kind — just my savings account.
Is it crazy to invest in the stock market now? I don’t really know much about it. How can I find a financial advisor I can trust? Should I change my money into a different currency? If so, which one? I’m confused and feeling a bit desperate, and this financial planner who contacted me is expecting me to make a decision in a week. Help me manage my money! Or at least give me some places to go to for sound advice.
Joleen should be congratulated for the smart choices she’s made so far. She may not have begun to save for retirement, but she has avoided debt, and she’s developed the saving habit. Also, she’s proceeding cautiously.
I can’t address the specifics of her situation — I have no idea what sorts of issues a Canadian living in China might face — but I do think there are some general principles that apply to all situations like this, no matter what the details are:
- Deal with advisors on your own terms. Call me crazy, but I don’t trust people who approach me out of the blue with an offer to help. I prefer to deal with somebody that I’ve approached myself, either via the recommendation of a friend or through my own research. In any case, when you do find somebody you might want to work with, check their background. See what other people say about them. Update: Several commenters argue that it’s common practice and perfectly acceptable for advisors to approach potential clients via cold call. They have valid points. Though I don’t like it myself, it’s not inherently wrong.
- Before you begin investing, set personal and financial goals. I believe that the road to wealth is paved with goals; if you don’t know where you want to go, you cannot know which road to take or which car to drive.
- If something sounds too good to be true, it probably is. Risk and reward are inextricably linked. You cannot obtain high return without high risk. Be wary of hucksters promising buckets of gold.
- Never let anyone rush you to make a decision with your money. NEVER. Take the time you need to find answers that satisfy you. Salesman of all sorts — even those selling financial products — pressure potential clients to decide now. They often create a sense of artificial scarcity: “If you don’t do this now, the chance may pass you by. You need to act quickly!” This is a ploy. It’s an attempt to rush you into a decision. All they want to do is close the sale.
- Take time to research the investments you make. It’s better to sit still and do nothing than it is to rush headlong into something you don’t understand. That’s not an excuse to procrastinate — it’s an admonition to be cautious and smart. If you don’t know how mutual funds work, take time to learn about them before you buy into one. If you don’t understand real estate investments, don’t buy property. Only make investments you understand.
I think Joleen might profit from reviewing some of my favorite financial literacy resources. (CNN’s Money 101 is an excellent place to start.) Although it’s geared toward U.S. residents, she might also find some good information in Dylan’s guest post about when and how to hire a financial planner.
Ultimately, when you begin investing, you must learn to trust yourself. You must develop the knowledge and skills necessary to feel confident in your decisions. I’m not saying that you need to become an expert on investing — but take the time to learn the basics so that you’re able to proceed from a position of knowledge and power. Remember: Nobody cares more for your money than you do.
Can you offer Joleen any advice, either about her specific situation or her general circumstances? If you were in her place, how would you decide whom to trust? Where would you go to seek information? How should she get started?
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As for whether to get into the stock market now:
1) Only with long-term money. If you are going to need the money for a house, vacation, or anything within the next five years, it should NOT be in the stock market.
2) With long-term money, do not jump in all at once. While the market is currently down a lot, the economic situation is dire and the market could certainly go much lower. I would suggest a dollar-cost-averaging approach over at least three years. That is, put 3% of your available funds in each month over the next three years.
As for vehicles to do this, I would recommend index funds from a discount broker. I use Schwab, but Vanguard and Fidelity are excellent as well.
If you have any questions, come see me at my blog, where the advice is always free and sometimes good.
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Another thing to keep in mind on the topic of advisors. No matter how good you may think (or have been told) your advisor is, if you find yourself too intimidated by them to be able to talk to them normally or ask them questions, you should not hire them. Financial advisors, lawyers, accountants, anyone charged with ensuring your future!
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I work as a Financial Ad visor in the US and these are my thoughts.
1. I don’t know what it’s like in Canada, but the FINRA and the SEC prohibit Financial Ad visors from imposing supposedly urgent deadlines on our clients. Before you invest in anything, you should be given a prospectus and be given time to do your own research. This sounds fishy to me, regardless of whether this person is with a major firm. There are still crooks out there.
2. There are honest advisors out there. Go to the Financial Planning Association Website, or to FINRA’s website to check out an advisors credentials.
3. Ask some of your trusted advisors (such as your tax person, banker, etc) for whom they recommend.
4. All people could benefit from an honest and trustworthy financial adviser. Tiger Woods is one of the best golfers in the world, but he still uses a coach. He also uses several advisers to help him make better money choices. It shouldn’t be about how much money you have to invest, but what your goals and values are first.
4. Now MIGHT be a good time to invest in the stock market, but it MIGHT NOT. It depends on your time horizon and your long term goals. However, one method I recommend is to use dollar cost averaging. That is, systematically investing over time. Read “The Automatic Millionaire” by David Bach for more info.
Disclaimer: This post is merely my own personal opinion. For specific financial, legal, or tax advice, see your own adviser.
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Beware of anyone who gives you a deadline or timeline other than yours. This guy is a salesman like most “financial advisors” are.
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Joleen sounds like a financial beginner, so I would strongly suggest staying away from fee based advisors or any cold callers. Please do not mistake that I think all cold callers are crooks, it is just too risky.
Investment w/in China is not so simple (I have no idea how they regulate or protect foreigners, you may have no protection at all).
For beginning investing, low expense, index funds or low expense balanced funds (especially conservative ones). I personally love Vanguard, but they aren’t the only good fund family. As a beginner, Joleen may be most comfortable with a regular investment schedule. It has the advantage of dollar cost averaging, and you feel like you aren’t making a bet on the market.
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I’d be very suspicious. Having working in the financial industry for over a decade, one thing I’ve learnt is that you shouldn’t trust anyone! There are good people about, but they’re hard to tell from those who’d sell their own grandmother for a quick buck (I’ve seen it happen).
It’s an industry full of smoke and mirrors. People don’t want you to know what the deal is because that knowledge will allow you to pin them down, hold them accountable for the decisions they’ve made you take.
If there were a way to always make money consistently on the stockmarket, whoever’s discovered it isn’t selling that information. Why would he? It’s his competitive advantage!
Even the experts get it wrong all the time, remember when they were saying last year that the credit crunch was a dream?
I’d read a book called “Why Smart People Make Big Money Mistakes and How to Correct Them”.
It’s a great insight into how you can avoid lots of bad mistakes!
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I’m a recent reader, and most of what I know about money – mine, and generally – is “clear up debt as fast as you can”.
However, based on what I HAVE heard from other people, I would actually say that I am very much with Frugal Bachelor on this one; his advice tallies with what I have heard. I think Joleen needs to do some reading, and I think she needs to stay away from this one “advisor” in particular, and I would do a whole lot of research before I would be involved in a financial transaction with a Chinese national, since I’ve heard such disheartening stories with regard to their honesty.
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Hmmm…
I am a newly-minted commission-based Registered Rep, and I’ve seen my supervisor try to avoid commissions to save her client’s money. There are good and bad people everywhere, and gross generalities are always wrong (including this one).
I have a small investment with a Chinese investment company that has languored for years now, and I have no idea if we will ever see it again… Many people do business in China because it is so hard to enforce regulations there. I would be very, very cautious around advisers there – especially if they give deadlines.
And I agree with the sentiment here. You are in no hurry, get an education first. Read, and find advisors that really want to advise. Talk to them, learn, and understand – if you lose money, you’ll be the one out so don’t let anyone else make the decisions. If you watch a good leader, they listen to advisors, then make their own decisions and take responsibility for them. In the end, your gains or losses are yours, not your advisor’s.
As WK said: Disclaimer: This post is merely my own personal opinion. For specific financial, legal, or tax advice, see your own adviser.
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Here is a clear litmus test to apply to financial advice:
If the person rendering the advice talks more about the product being sold than about your needs (risk tolerance and life goals) the pitch should be considered illegitimate. Walk away.
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I haven’t read all the other comments – but the question about whether to go with this FA is a no-brainer. First, don’t go with anyone who solicits you – that’s a salesperson. Second, don’t invest in something you yourself admit you don’t understand. If the scheme this salesperson is trying to sell you is so complicated you can’t understand it, run. Third, if you are expected to make a decision within a week – or on anyone else’s timetable but your own, RUN. Never trust an FA who uses high pressure sales tactics.
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