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Where Do Investors Get Investing Advice?

Hint: It’s usually not advisors

Jake Spiegel

 

The proliferation of workplace-sponsored retirement plans and IRAs has led to more workers becoming investors, but what’s less clear is whether these new investors are getting quality advice about how to meet their investing goals. To answer that question, I once again turned to the Survey of Consumer Finances.

Survey respondents are asked about the sources of information they use when they make savings and investing decisions. While the survey doesn’t ask respondents to rank these sources of information in terms of usefulness or their preferences, this data can still give us a glimpse into how investors get advice and make decisions.

Most turn to the Internet for investing advice

Investors most commonly cited the Internet as a source of information when making savings and investing decisions. We’ve all scoured the Internet to find movie reviews and restaurant recommendations, so it’s only natural for investors to go online when they’re trying to figure out the best mutual fund for them.

Many investors enjoy the hands-on, do-it-yourself approach, but the Internet might not provide all the information these investors need. For one, there’s no such thing as a one-size-fits-all investment strategy. Without a detailed look at someone’s personal finances, it’s hard to generate useful investing advice. Also, do-it-yourself investors can fall victim to blind spots, such as underestimating healthcare costs in retirement.

Friends and family are also a common source

Investors most commonly cited friends and family members as sources of information for savings and investment decisions. Much like the Internet, it’s common for people rely on their friends and family for recommendations and advice on a wide range of topics, and for many, this includes their personal finances.

Our friends and family, however, don’t often have a complete picture of our finances, which could prevent them from giving sound advice. A smart move for an older worker nearing retirement might not be a good idea for their sons and daughters just starting their careers. And as well-meaning as they may be, friends and family members might be making their own savings and investment mistakes, and these mistakes could inadvertently get passed along. On top of that, social comparisons can have a negative effect of an investor’s financial well-being.

Busting stereotypes could create opportunity for advisors

According to the survey, advisors were less-common sources of information for investors: Only 39.7% of investors sought an advisor’s advice when making savings and investment decisions. And this might be a result of investors not really viewing themselves as conforming to the white-collar investor stereotype. By opting for a do-it-yourself approach based on Internet research and consultations with friends and family, many investors seem to think that advisors aren’t really “for them.” But nothing could be further from the truth. Advisors play a clear role in helping investors make informed decisions, and overcome obstacles and blind spots.

Download the full paper “It’s Time to Redefine ‘Investor’: How Looking Beyond Investing Stereotypes Can Drive Long-Term Success.”

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