Looking for investing advice is easy, but knowing who to trust is a little more challenging. You’ve likely received countless tips from publications, companies, influencers, and even friends.
At times, these pieces of advice may be at odds with each other, leaving you unsure what to do. Consider these steps to help you decide whether an investment tip is worth following.
1. Make sure it's from a credible source
Study the source of the tip. Do they have the authority to provide sound advice? Look out for these signs of a trustworthy source:
- Good track record
Check the credentials of the individual, company, or platform offering the information. You’re likely to find reliable insights from financial institutions, advisors, and publications with the right accreditations and a history of giving advice that yielded good results.
- Research-driven
Solid investment tips are based on proper research. They don’t rely solely on personal stories or anecdotes that are often hard to verify.
To find insights you can trust, look for sources that include credible statistics and historical data to back their claims.
- Transparent
Investing advice may sometimes carry subtle promotions of products, services, or companies. Any hidden agenda can affect your sources’ ability to offer clear and impartial information.
To offer good investing advice, your sources must show both pros and cons without concealing possible costs or risks. At the very least, they should disclose any sponsors or promoted products to stay transparent.
2. Factor in the risks
Any trustworthy advisor will let you know exactly what you’re getting into, so you won’t end up feeling blindsided once you invest. All investments pose a certain degree of risk, and understanding this is essential to making informed decisions.
Be cautious of tips that downplay the risks associated with an investment. You should also think twice when someone urges you to take more risk than you're comfortable with.
3. Be wary of hot tips or "insider" information
You might come across “hot investment tips” that are supposedly only known by a select few. People might claim to have exclusive information about a company from an “insider,” and urge you to take advantage mainly by investing in that company’s stocks.
These may turn out to be baseless, or worse, nothing but an investment scam. Even if they were true, actual insider trading is illegal because it gives certain people an unfair advantage.
4. Do your own research
One way to protect yourself from bad investing advice is by cross-checking the claims. Verify the tips using reliable sources and be aware of any biases that can affect your decisions.
Instead of relying on rumors or hot tips, it might be better to carefully study your options or assess a company’s fundamentals before putting your money on the line.
5. Assess the relevance
Keep in mind that not all investing tips will be relevant to you. This is because you have a unique investor profile and goals.
Even if a tip is reliable, you might not need to act on it if it doesn’t suit your situation. Filter out irrelevant information so you can avoid decision paralysis and stay focused on your investing strategy.
