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Why you should never take investment advice from your friends

You are new to the investment world. Seeing that your friend is deciding to quit his full-day job to focus on investing, you thought maybe you could ask him for some good investment tips. He must be making a lot of money if he’s willing to resign from a stable position, right? 🤑

Getting your friends to share their investment insights is fine, but the moment you act upon their advice, that’s when things can get a little complicated. 

One size does not fit all

One size does not fit all, size matters, two woman talking about size

Your friend’s investment strategy will not necessarily apply to you because different people have different financial goals and risk tolerance. 

For example, you might be happy with having enough money to retire comfortably in Putra Heights. However, if your friend wants to retire in the Maldives 🌊, his strategy might involve a higher investment amount and a riskier portfolio that might not fit yours. Following his approach blindly can be risky!

It’s also important to note that your friends are not obligated to tell you about the times when they lost money or how many sources of income they have. All of this matters when you are planning an investment strategy. 

Man scheming a plan, man asking someone to keep a secret, man raising eyebrow

Remember, your investment strategies should be tailored to your needs, not what your friend thinks is good for you. 

Friends may not be frank

Financial advisors would wanna know everything related to your finances – your goals 🥅, time horizon ⏳, debts💸, financial habits 🛒 etc. Nothing holds them back from analysing your investments objectively and telling you where you went wrong because that’s what they’re paid for. 

Woman getting enlighted

Heads up: How you might feel after the consultation with your financial advisor 

With friends, we’re often uncomfortable sharing our money issues. We’d probably hide some embarrassing details from them too. Even if you’re fine baring it all, telling your friends about your financial dilemma can put them in a tough spot 😅. They might not be able to tell you their opinion objectively, and they need to tread lightly to not hurt your feelings. 

If you make an investment decision based on this ‘filtered’ advice, do you think it’ll be good for you?

If you screw up, you’re gonna blame them

Your friends may have shared investment advice with good intentions, but giving advice is much easier than living with the consequences. 

If that stock your friend has been recommending suddenly dips and keeps dipping, you can’t turn to him and say, “Oh btw, you owe me RM10K”. What if they too invested in the same stocks and suffered more loss than you 😵? You cannot expect them to take accountability for something that you ultimately decide to invest in🤷🏻‍♂️. 

Sassy blonde woman

It’s human nature to blame something else on our misfortune. The problem is, the moment you start pointing fingers at your friends, you are jeopardising your relationship with them. 

Is that worth it?

Making the right decision

Some behavioural economics research has shown that those close to us can have a significant impact on our investment decision. We take their advice because we feel that they have our best interest in mind 🧠.

Unfortunately, according to the Financial Industry Regulatory Authority, 70% of investment fraud victims bought an investment after being advised by a friend or relative🤦🏻‍♀️. This shows that friends don’t always give sound investment recommendations. 

Spongebob saying why, Spongebob Movie

There’s nothing wrong with listening to your friend’s investment experience and ideas, though. Just make sure that you run through the idea with a pro before putting it into action. Perhaps you can get your financial advice from someone with a Certified Financial Planner (CFP) or Chartered Financial Analyst (CFA) credential. 

HeyAlfred may not be able to tell where to invest, but we can tell you how much money you’ve been spending on your investment. Download the HeyAlfred app on AppStore or Google Play today!