How can my Investor let me Lose Money on Investments?

How can my Investor let me Lose Money on Investments?

Susannah Snider, CFP

Susannah Snider, CFP

I am constantly losing money on stock and cryptocurrency investments. And I paid for the advice that gave me the information I used to do this. For example, I was told to buy SoFi and I lost money all the time when I invested there. What can I do?

I can hear your frustration seeping through this issue. And I get it. After all, what’s the point of paying for financial advice if you’re not going to make money on the guidance you receive?

But before you fire your financial advisor (and you might want to read this), it’s important to review reasonable expectations about what a financial advisor can guarantee, how to avoid scams and bad actors and what to expect when it comes to market losses and gains.

A financial advisor can help you understand the pros and cons of certain investment decisions.

What Professional Financial Advice Can Do For You

Be sure to find a trusted financial advisor.

Be sure to find a trusted financial advisor.

It is important to note that no financial advisor can predict the markets. Sure, consultants can use historical charts and models to make educated guesses. But you should view most claims of guaranteed investment returns with a healthy dose of skepticism. Both individual stocks and cryptocurrencies come with a lot of risk, no matter who is telling you to buy them.

Instead, an excellent holistic advisor can help you formulate a financial plan that avoids market downturns and reduces exposure to risky or speculative financial products.

That financial plan can include stocks that sometimes lose money. It might even include cryptocurrency investments that are only a reasonable portion of your portfolio (read: money you’re willing to lose). But your funds should be diversified and put into different buckets that allow your money to survive a downturn in the market without going bankrupt.

For this assistance, you will typically pay a fee, often around 1% of assets under management (AUM). Alternatively you can pay an hourly fee or a per project fee based on the structure of your agreement.

The Importance of Looking Confident

When I find a financial advisor, I usually recommend working with a fiduciary. That’s someone who has a legal obligation to act in your best interests.

There are a few shorthand ways to determine if you are working with a trusted financial advisor. Certified financial planning professionals (CFP) must be a fiduciary. The advisors listed on the SmartAsset platform are also trusted advisors. You can also ask when interviewing potential financial advisors if they are a fiduciary and act in that capacity at all times.

I like to share this information because anyone can call themselves a “financial advisor,” even someone who hawks risky financial products on YouTube or sells investment shares on Facebook. If you’re getting advice that’s not like him, consider who you’re getting it from and whether the person needs to act in your best interest when making that recommendation.

Identifying Scams and Frauds

A financial advisor cannot guarantee that your investment will always remain in the dark.

A financial advisor cannot guarantee that your investment will always remain in the dark.

While it’s not necessarily bad form for your advisor to recommend or pick a single stock, I wonder if those options have been clearly presented to you. Trusted financial advisors can’t protect you from all market losses, but they should recommend investments that complement your overall portfolio and warn you that you won’t be overexposed to certain assets.

No advisor worth his salt will tell you more than you can invest in any one pot or security.

If you make a counselor record of your disciplinary actions or complaints, you will be able to identify the bad actors in the space. Some ways to check your financial advisor include:

  • Use FINRA’s BrokerCheck. Enter the name of an advisor or firm into BrokerCheck, a free tool, which will provide you with arbitration and complaints, licensing information and regulatory actions.

  • Use the SEC’s Investment Adviser Public Disclosure. This tool, which links to BrokerCheck, also allows you to view information about an investment advisor and its business operations.

  • Check their credentials. Licensing such as Tier 7 allows advisers to sell securities. In addition, CFPs and chartered financial analysts (CFAs), for example, must overcome a series of educational hurdles and adhere to professional standards.

Can Your Financial Advisor Protect You Against Market Losses?

Short answer: No. A financial advisor, even an intelligent investment manager, cannot guarantee that your portfolio will always be in the black. Unless you have your money set aside in a few savings accounts or certificates of deposit, you are likely to ride the market’s shortfalls, no matter who is giving you investment advice.

Some things a counselor can do include:

  • Help you design a diversified investment strategy with a risk profile that suits your investment time horizon and risk appetite.

  • Help put money into “buckets” for short, medium and long term goals.

  • Recommend investments or strategies that will help you achieve your financial goals.

  • Giving you the freedom to play around with money in individual investments. But a good advisor will encourage you to only “gamble” with the money you can afford to lose. Many cryptocurrency advisors, for example, recommend taking no more than 2% to 5% of an investor’s portfolio.

Base line

Paying for advice does not guarantee that you will avoid all losses in the market. But if you’re feeling squeamish about the way these investments were presented to you and how they were described, it’s worth reviewing your financial advisor’s credentials and making sure you’re working with someone legit.

Investment Tips

  • If you have questions specific to your investment and retirement situation, a financial advisor can help. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three financial advisors serving your area, and you can interview your advisor at no cost to decide which one is right for you. If you’re ready to find an advisor to help you achieve your financial goals, get started now.

  • If your investments pay off, you may owe capital gains tax. Find out how much you’ll pay when you sell your stocks with our capital gains tax calculator.

Susannah Snider, CFP® is SmartAsset’s financial planning columnist and answers reader questions on personal finance topics. Have a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.

Please note that Susannah is not a participant in the SmartAdvisor Match platform.

Photo credit: ©Jen Barker Worley, ©iStock.com/Jirapong Manustrong, ©iStock.com/Viorel Kurnosov

The post Ask an Advisor: I’m Losing Money on Investments. How Can My Advisor Let This Happen? appeared first on SmartAsset Blog.

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