The Pros and Cons of Investing Other’s Money

Many people have a lot of knowledge when it comes to making wise investments, and some people even venture out to become investment advisors for their friends and families. Is this a good idea? There are definitely some advantages and disadvantages that come along with it. Even the wisest investors may not want to handle other people’s money and make their investment decisions for them, for fear of ruining the relationship if something goes awry.

Free Financial Advice

One of the biggest advantages for people that hand over their investments to a friend or family member is that they can get the advice that they need for their investments for free. This is usually because they have a close relationship. While this can be an advantage, it can also prove to be a drawback over time. The knowledge that is shared about the financial investments can seem to be just free advice and help offered by the family member, but sometimes it can put undue stress on the relationship.

People who ask their family members for advice on their investments are likely unaware of the risks that are involved with investments. They expect that the advice they are going to be given is going to be a “sure fire way” to make some money. This is not always the case. Even the most knowledgeable investors can make mistakes from time to time with their investors. The truth is, investing comes with a risk, and from time to time money is lost. That is never the plan going into an investment, but it happens. Most investors make their choices based on what has happened in the past, and while this is usually a good thing it can fail them from time to time.

Even if the investments do very well, there could be issues that arise with not paying the advisor since they are a family member or friend. This can cause emotional distress, and can put a cramp in the relationship.

Legal Issues

When family members or friends handle investments, there can be some legal issues that arise. This is because it is not an agreement that is legally binding. There is usually not a contract involved either. If they repay them with monetary gifts, dinners, and other things of value, then it could be considered payment for their services. This makes it grounds for legal claims if something were to happen. In fact, investment advisors must register and get a license in order to practice. This could come back around to bite them in the end.

Giving Advice Rather than Doing it For Them

The best thing for people to do is to simply give some advice instead of actually taking over the investments. Offering books and other information that could be valuable is a great thing to do as well. Pointing them in the right direction can often times preserve friendships and teach them lifelong lessons on investing.