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January 29, 2021 at 03:59 PM
GameStop has this week become the investing equivalent of a flash mob. This term, coined around 2003, seems eerily accurate. In this case, your client isn’t considering break dancing. They are putting money on the table. There’s the potential for loss. What to do?
“It’s my money” is a key concept. Clients make the ultimate decision. Clearly, orders that were their idea are marked “unsolicited” as you place them. According to Forman Law Firm, the advisor has a duty to execute the order a client places with them. However, it’s fair to assume there would be discussion beforehand. Advisors need to be a sobering, stabilizing influence.
1. Some people treat investing as a game.
It’s an app on their smartphone. They can play blackjack online. This is another game. A good advisor would explain although people can have “play money” the majority of their money should be invested with a long-term plan.
2. Are you putting too much money at risk?
It’s logical the online trading accounts people use could also be considered retirement or investment accounts. This is meant to be money people are supposed to be saving. A good advisor would remind the client of their priorities.
3. Margin is even more fun.
You can make even more money using borrowed money. Yes, it’s true, but the gain (or loss) takes place from your piece of the pie. The loan amount never declines, unless you are paying it down. A good advisor explains how margin works.
4. Just click here.
Unfortunately, people agree to things they don’t understand or even read. They accept responsibility by hitting “click here to accept” terms and conditions. Why? Because they want to get to the main event. This is an obstacle to be overcome. A good advisor explains what they are signing. They hand them a copy of those papers. A further copy is sent to them.
5. Diversification.
If it’s a game, it’s like poker. You play one hand at a time. “I’m betting all my money on this stock.” A good advisor would explain the risk of concentrated positions.
6. Why will this work out?
There must be logic when you make investments. Certain things need to happen to put this company in the right place at the right time. Investors have bought companies with one foot in the grave for years, hoping they will turn around.
A good advisor explains equity shareholders are last in the pecking order when a company goes under. So why will this company not go under? Work out? Please tell me.
