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avoiding giving investment advice

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So I was talking to a family member, who knows that I blog on personal finance, but doesn’t as far as I’m aware, know the name of my site. She wanted to know if I would manage her investment choices for her.

At the moment she’s letting (or planning to let) a friend do it - I’m not sure how this works in practice. I’m not exactly remotely a professional financial advisor, which I  reiterated several times.

The reason that she’s letting this friend choose her investments is that the friend is so passionate about her funds, checking their performance regularly and making sure they’re in the top few performers.

This isn’t exactly my style. I’m into boring index funds, and returning an average performance. I tried to explain this to my relative, but I don’t think that she gets it. I think she thought that since I’m so enthusiastic about personal finance blogging, that I’d relish the opportunity to manage her funds. This couldn’t be further from the truth.

I think she was pretty disappointed, and we’re going to discuss it some more at the weekend.

Does anyone have any suggestions for me?

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11 comments for “avoiding giving investment advice”

  1. Sounds like an awkward situation - I couldn’t quite tell from your post but it sounds like she’s not a very good listener, which would scare me off completely. I would refuse as gently as possible. If I’m reading that wrong, then perhaps instead of managing her money for her, you could offer to advise her - explain the various options, make recommendations, but let the final decision be hers. In other words, she would have to learn to manage her own money.

    Posted by Chief Family Officer | December 7, 2007, 1:29 pm
  2. If this person’s friend is a young Warren Buffett, then it’s a great idea! Otherwise, I wouldn’t like the idea of mixing friendships and money and investments.

    I think you should try to teach your family member about the benefits of boring index funds and maybe get her started on a good introductory book. I always try to pass on education rather than specific advice when it comes to investing.

    Posted by FinanceAndFat | December 7, 2007, 3:49 pm
  3. @CFO:
    It’s not so much that she’s a poor listener as that she’s not used to thinking that I might actually fundamentally know more than her about investing.

    She wouldn’t be surprised if I had some great fund recommendations, but to actually have a different (and IMHO better) investing philosophy altogether is something else.

    I’d prefer to educate her and get her to DIY her investing. I’ll think about a book, after all, it is nearly Christmas.

    Posted by plonkee | December 7, 2007, 4:27 pm
  4. Perhaps tell her about why you’ve chosen to go the more “boring” route because the odds are so much better and whatnot. I certainly wouldn’t want to manage anyone else’s investments…

    Oh, and explain to her the fees involved with constantly shifting one’s stock portfolio. Because I think her friend may inadvertently cost her a lot of money.

    Posted by Mrs. Micah | December 7, 2007, 4:37 pm
  5. I was just worried that she’d lose money by chasing performance, I’d forgotten about fees. I think I’ll try and work that in when I chat to her.

    Posted by plonkee | December 7, 2007, 5:04 pm
  6. Do the book thing.

    The problem with trying to teach someone about passive investment is that it requires a fair bit of education. Recommending “hot” funds is a lot quicker (and easier).


    Posted by FourPillars | December 8, 2007, 1:33 am
  7. Ugghhh. Bad situation to be in, I think. The best thing I could recommend is the book idea, but explain the how and why about the book and be open to conversation. Let them know you are interested in discussing and teaching, but not doing the actual running of the books. That is a recipe for disaster!

    Posted by Patrick | December 11, 2007, 4:18 am
  8. I’m glad everyone thinks that my instinct to run away from managing someone else’s investments is a good one. Now just to let this person know…

    Posted by plonkee | December 11, 2007, 9:19 am

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