In the early days of our marriage we saved a lot of our money for future needs. One thing we saved for was a down payment on a house. Another was a college fund for our kids. We ended up having 4 kids, so we needed to save every bit of that money.
One day I got a phone call from a broker talking up a stock. That’s known as a cold call, since we’d not had any business with this person before. As a matter of fact, we’d not had dealings with any brokers. I was interested in learning more about the stock market. So when the broker called I was actually flattered that somehow they had gotten our number. Talk about naive!
I took down the information and, after discussing it with my husband, decided to not do anything about it. After that the broker called us about every 4 months. I really enjoyed talking with her and felt it could be worth our while to listen to her recommendations. After a few more calls we took the bait. We bought stock in a local company that seemed important, even though we had not studied anything about it. We just took the word of the broker that this was a good investment. We then watched the stock price go down and down into penny stock territory. We held out hope for a while and then finally sold at a loss.
Yes, we felt stupid. The broker called us one more time with a “good opportunity” stock. We passed on it and asked her not to call anymore. No more brokers ever called us, but we would not have bought anyway. About that time mutual funds started becoming more known and we put our 401k money into some of those. Much less worry and hassle!
Brokers make money when their clients buy or sell something. Mostly they like to sell you something. So don’t get taken in by smooth talk and feel flattered by their attention like I was. If you want to invest in stocks, bonds, mutual funds, or whatever, do your own homework and/or try to find an investment advisor that does not make trades. Of course you’ll have to pay a fee for that advice, but at least you’ll know you are not being played. Then you can place your trades yourself at a discount broker, like Charles Schwab, etc. (no affiliation).
Even if you have a broker already, take some time to research any purchases they are recommending. If you don’t have the time to do the research, you don’t have to buy it. Most of all, don’t feel that you are somehow special to your broker. It’s just business–no matter how nicely the broker is talking to you!
Maggie says
I have heard of quite a few people consulting “Financial Advisors” lately. I don’t see anything wrong with paying them a fixed fee for a certain number of hours of consultation. I wouldn’t keep paying them year after year unless I felt it was worth it. As you say, buyer beware! And keep track of what’s going on.
Anonymous says
There are not as many stock brokers as there used to be. They now call themselves Financial Advisors and are just as interested in selling you your money. Forget transaction fees, Financial Advisors/Brokers make much money by charging you every year. Many investors have no idea how much they pay in fees and the different ways advisors/brokers get compensated. Buyer beware!