The Four Worst Questions to Ask Your Financial Advisor

As financial advisors we receive many of the same questions from investors:

• What’s the difference between a traditional IRA and a Roth IRA?

• What value do you add as my financial advisor?

• What’s the difference between mutual funds and index funds?

We also hear some questions that make us wonder what investors have experienced in their past with investing. Here are a few questions we believe are bad to ask your financial advisor. We believe these questions are ‘bad’ not because the investor is in the wrong, but because these questions come from a misinformed way of thinking about investing.

Where do you think the stock market is headed next year?

If a financial advisor gives a clear, definitive guarantee about where the stock market will go next year or even next month, that should be a warning sign. The reality is no financial professional can know exactly where the stock market is going to go in the next year. Some may be able to discuss the probability of future success, but of course, past performance is no guarantee of future results.

What we do know is evidence-based investing relies on stock market data and trends to make educated assumptions for sound financial decisions. A good financial advisor will tell you what they think the stock market will do based on past performance. The key to making educated assumptions is the importance of updating your assumptions as new evidence presents itself.

Do you have any high-return, low-risk investments?

Anything worth investing your money in is also worth investing your patience. Looking for high-return, low-risk investments often leaves investors disappointed and hurt by their expectations. A balanced perspective towards investing means you are willing to wait at least five years or more to truly realize the value in your investments. Contrary to what you may see in the movies, the stock market is not a ‘get rich quick’ scheme.

Do you have any good investments that won’t lose money?

This question is often driven by myopic loss aversion where investors would rather take no action than lose money through investing. Are occasional losses to be expected with investing? Yes, many investments tend to decline in value at some point over a period of time, but it’s those same investments that are left untouched that often gain significant value over a five- to ten-year stretch.

Investments that have the potential of good returns tend to also carry a risk of loss. If you can’t figure out the risk, that’s a bad sign. Either you’re not understanding the investment, the advisor is omitting information, or the advisor is misjudging your knowledge of the investment.

Where can I invest to make a lot of money in the next two years?

As we just mentioned, investing is a game of patience. We recommend investors let their equity investments continue building value for a minimum of at least five years. If you have concerns about a particular investment, your financial advisor should be able to show strong evidence to support your decision before you invest.

Our American Portfolios Denver team helps investors such as yourself get the answers you need in easy-to-understand language. Your financial goals will come with different questions over the years. We aim to serve you with the right information to make the best possible decision in pursuing your financial goals. If you have questions for our advisors, we’d love to hear from you. Click here to start a conversation with our team today.