When we set out to invest for the first time, we consider where to get the right financial advice. There are many sources of information which each carry their own benefits and drawbacks.
For example, there are options such as investing books – those affordable paperbacks available from bookshops or download, which could give expert views on how to build investing and what a portfolio should look like.
There’s also more formal routes such as receiving an education in finance and investing from a college.
And of course, you can receive financial advice from the professionals in the industry whose sole job is to inform investors on making investment decisions.
The relative cost of each and what you could get out of these options differs massively, therefore I think it’s worth spending this article exploring the options at the two extremes – investing books versus financial advice.
Tailored to you: Financial advisers consider your circumstances
The first factor I’ll assess is how much the medium tailors its education to your circumstances.
With an investing book, the best you can do is try to pick titles which might apply better to your individual situation. For example, buying a book called ‘investing on a shoestring’ if you’re looking to cut costs, and avoiding titles such as ‘how to invest in land’ if you want a simple investment portfolio. This is ultimately a very crude way to tailor the advice you are receiving.
All investing books written with the assistance of a lawyer will make very clear in the foreword that an investing book is not a replacement for financial advice, in other words, you cannot officially ‘rely’ upon what is written in the book. Any choices you subsequently make are your responsibility alone, and if you feel uncomfortable making financial decisions, you need to seek financial advice from a professional.
Even if you do feel comfortable making investing decisions based upon your own knowledge – there’s no guarantee that your confidence is well-placed. In fact, you could be making objectively a poor decision, which an adviser would have advised against. This wouldn’t be flagged up to you at the time.
A financial adviser on the other hand, will certainly consider your individual circumstances before recommending a product or investment. They will consider, at a minimum:
- Your appetite towards taking risks with investments, and your attitude towards future losses
- The length of time you will be investing for (as the longer this period is, the lower the risk), this is also known as time horizon.
- Your personal financial objectives – what is it you want to achieve with your money?
Expense: Investing books are much cheaper than financial advisers
The next factor I’ll consider is the cost of each option. This is a simple point to analyse.
Investing books cost between $10 – $40, and to read one investing book per month for an entire year would set you back $150 but would provide a tonne of useful information.
Financial advice costs from $500 and upwards. A $500 service sounds expensive, but actually this would get you only a very specific recommendation, and would restrict you to a restricted adviser, i.e. not an independent financial adviser who can look at the whole of the market for you.
If you have a large sum to invest, financial advice from an independent adviser could cost $3,000 for a full review, and perhaps more if you’re investing a really large sum, i.e. $100k+
Relationship: It’s easier to build rapport with a human than a book
Finally, in terms of relationships – it’s clear that financial advisers are going to develop a better relationship with you than a book.
However – you will only have a limited amount of time to make contact as part of any agreed fee.
While you can dip in and out of investing books at your leisure – it’s likely that you will only have 2-3 hours of conversations with a financial adviser before they recommend a product to you.
Overall, I prefer investing books. I like the idea that you can take as much time as you like, mix and match titles to appeal to your interests, and if I’m unsure of any concepts, I can re-read or look at how another author approaches the same topic to help my understanding.
This way, I feel confident that I can cross any bridge from where I am now, to where I’d like to be in terms of investing knowledge, given enough time. Given the cheap price of investing books, I don’t feel like the cost of advice is eating away at my funds and working against my investment goals, so I feel like I’m doing the right thing.
However everyone is different, this is only my personal opinion. Many people won’t have the time to spare to read enough to get confident in investing, and for these people, financial advice from an adviser might fit the bill really neatly for them.