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?
Author: J.D. Roth
In 2006, J.D. founded Get Rich Slowly to document his quest to get out of debt. Over time, he learned how to save and how to invest. Today, he's managed to reach early retirement! He wants to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you reach your goals.