Is general financial advice useful?
OVER THE LAST MONTH, THERE HAS BEEN A FEVERISH BUILD-UP OF EXPECTATIONS THAT AS SOON AS THE FED HIKES RATES, INVESTMENTS WILL BE HIT HARD
General advice about investing is unlikely to be applicable to every investor who reads it.
Suppose you read an article written by a doctor which says that you should exercise every day. Surely, it’s advice that should be followed.
However, suppose the article also says that you should eat a 40mg tablet of XYZ medicine every day. Should you follow that advice too?
Clearly not. In fact, it is highly unlikely that a doctor would write an article with such specific advice. It is self-evident why we feel such advice is wrong — the person writing the article cannot know a reader’s specific health issues. For a large number of readers, the advice must necessarily be wrong. And readers know it — they know that specific medical advice can only be given by knowing them personally.
Surprisingly, we seem to be under no such inhibition when we read advice about money or investing. Over the last month, there was a feverish build-up of expectations that as soon as the US Federal Reserve hikes rates, all hell will break lose in everyone’s investments. The panic was well-reflected in online discussions of Indian investors. Surely, everyone should sell their investments in time for the postFed collapse, the logic went.
There is no way such advice can be meaningful without knowing what your particular circumstances are. How old are you? What is your job like? What proportion of your investments bear market risks? How much risk can you bear? When do you need the money? Thinking that the advice applies to you without considering all this, is pretty much like taking some medicine because a newspaper article said so.