Basic Yet Best Investment Advice

When I mention to people what I do for living, I’d frequently get questions on best places to invest nowadays. To that, I’d usually say:

TIME OUT!

Fighting Investment Frauds

A free video on investment fraud, from an e-mail I received from EBRI:

Visit SaveAndInvest.org to watch a preview of Tricks of the Trade: Outsmarting Investment Fraud, a free 60-minute documentary on preventing investment fraud. The video uncovers the persuasion tactics con artists use to defraud their victims through compelling stories of victims and perpetrators. It also teaches the basic defenses investors can use to guard against fraud.

So, Where’s the Best Place to Invest?

On my second day of my new job, I was asked this question due to people’s expectation of my expertise int his area. In this type of economy, those who asked this type of questions must be in the minority. In fact, they aren’t supposed to ask this question given that they are surviving this economy. Perhaps that guy who posed the question just won a lottery.

He laughed out loud when I mentioned to him”save it”, proclaiming that I am Republican. I don’t even vote …. neither can he. Thinking back, I may have provided the second best short answer. The best answer will be provided later on.

Two important things with regards to tackling the “where to invest?” question: knowing people’s background and credit card debt puzzle.

When providing advice (note: not advise), financial planners need to know the whole picture. How much money are they talking about? What are their financial situations? i.e. how much debts, assets (financial and physical). What are their financial plans – short term and long term? What are their sources of income? What are their health conditions? This include on whether they plan to purchase another house, live in a retirement housing, early retirement, paying tuition for children, etc. Only then, advice may be provided and a solid financial plan may devised.

The credit card debt puzzle is explained by the situation where people have debts and at the same time, liquid asset. The intriguing part of this is that these individuals would rather be in this situation than to pay off their debts with interest. Teylukova and Wright (2008) observed:
27% of U.S. households in 2001 had credit card debt and liquid assets both in excess of $500; and the median household in this group revolved around $3,800 on their credit cards even though they had $3,000 in the bank”

So, if you happen to have some cash that you think ought to be used for investment, consider paying off your debt – credit card, education, car loans, etc. An 8% interest on your credit card debt vs. investment that you are not even sure going to be have profits or gains in this kind of market – which one should you choose?

Reference

Teylukova, I., & Wright, R. (2008). A model of money and credit, with application to the credit card debt puzzle. Review of Economic Studies, 75(2), 629-647.