One of the best ways to build wealth over time is through investing. In many cases, if you focus on low-cost funds, you are likely to do reasonably well over time. However, this type of investing can be a little “boring” to some people. Instead, they start looking around special investments and “hot” stock tips to help them make more money a shorter period of time.
Unfortunately, the sources of these hot tips aren’t usually the most reliable of people. And, even if you trust them, it doesn’t mean that they are knowledgeable. Here are 3 people you probably shouldn’t take investment advice from:
1. Anonymous Sources
There is no shortage of anonymous sources attempting to get you to invest in the next big thing. Such stock tips often come in emails, or from seminars offered by “experts” who are hard to find afterward. In many cases, the stocks pushed via email or over the phone are part of what’s known as “pump and dump.” They are usually inexpensive (so it seems affordable), and as you enthusiastically invest -- along with hundreds of others -- the price rises. However, once the price hits a certain point, the big owners sell, dumping their shares and causing the price to plummet. You are likely to be left with a significantly less valuable portfolio.
Perhaps you get a stock tip from a co-worker who “knows somebody.” Or maybe this co-worker is just a “dabbler” who believes s/he is an investing genius. In any case, be wary of co-workers offering investment advice. Few of them have the background to offer useful investment advice.
Also, watch out for co-workers who want to introduce you into a special investment “opportunity” that allows you to get in on the ground floor. While the co-worker might not be trying to swindle you, he or she might be the victim of an investment scam. S/he thinks that it’s a good investment, when really it’s a pyramid scheme.
3. Family Members
Unless your uncle works in the industry, it’s usually not a good idea to get investment advice from family members. Family members might mean well, but are they really credible experts on investing? Do they understand the investment? Too often, a family member will offer an opinion or advice, without really understanding the process. Additionally, you run into the same problem as with co-workers: You might fall victim to a scammer who has convinced your family member to reel you in.
The bottom line is that you should do your own due diligence on any investment. No matter who’s telling you about the “opportunity,” take a step back. Research the investment, and if you aren’t sure, don’t get involved.