Banking/Financial Services Advice That Is Dead WRONG

Many individuals rely on banking and financial services to manage their finances. These services include investment advice and recommendations, various product selections and the placement of assets. The services and products offered are typically based on the advice provided by a financial advisor or other professional who is qualified to work with a client. Although most advice that is provided that is appropriate for client needs, there are some bits of advice that are altogether wrong. Here are few pieces of investment advice that can be wrong for most investors.

Investing in a CD for Long-Term Growth
Some bank advisors suggest that their clients use their certificates of deposit or CD as long-term investments. A CD provides a stable income or growth based on the financial stability of the issuing institution. This growth tends to be low since CDs pay low rates of interest that may or may not keep pace with the prevailing rate of inflation. This means that over time, CDs may actually lose money.

CDs are appropriate instruments for short-term investing or as a temporary place to keep money when contemplating a long-term investment strategy.  The rate of interest is low for CDs but they tend to be stable investments and help to protect the principal value invested.

Using CDs over a long period as an investment strategy will cause you to lose money due to purchasing power risk, which is the risk that the value of your investment will be lower due to inflation.

Keeping Your Assets in One Institution
There are advisors that advocate keeping your money in one institution in order to keep better control over your assets. By employing a one-stop shopping method of investing, the advisor is in a better position to direct your assets without the need of contacting multiple investors as to the state of your investments.

One-stop shopping may be okay in situations where you need the convenience of storing all of your assets in one place, however, the problem with relying on one institution is the potential for default risk or failure of the institution, resulting in you receiving a small portion or none of your money  In the case where you have investment assets held alongside depository assets with a bank, your investment assets are not insured by the FDIC and you may be subject to loss as a result.

Chasing Returns
An advisor that recommends moving assets to follow investing trends that favor high return investments is in essence chasing returns. This type of strategy is sometimes referred to as market timing where an advisor seeks to invest just before an investment reaches its peak and sell it is highest point in order to create a profit.

If successful, market timing strategies can produce big returns and significant profits for your portfolio. Market timing tends to put you in an investment at its highest point and sell at a lower one, which is the antithesis of investing.