Subject: Advice - Paying for Investment Advice

Last-Revised: 25 Apr 1997
Contributed-By: Chris Lott (contact me)

This article offers an informed amateur's advice on paying for investment advice. I have a simple rule that you can use to evaluate all advice that is offered to you, especially advice for which someone who doesn't know you is asking significant sums of money. Ask yourself why the person is selling or giving it to you. If it sounds like a sure ticket to riches, then why is the person wasting their time on YOU when they could be out there making piles of dough?

Of course I'm offering advice here in this article, so let's turn the tables on me right now. What's in it for me? Well, if you're reading this article from my web site, you should see an advertisment; actually probably more than one. On good days I earn a teeny, tiny payment each time a person loads one of my pages with ads. So my motivation is to provide informative articles in order to attract visitors to the site. Of course if you're reading this from a plain-text version of the FAQ, you won't see any ads, but please do stop by the site sometime! ;-)

So if someone promises you advice that will yield 10-20% monthly returns, perhaps at a price of some $3,000, you should immediately get suspicious. If this were really true - i.e., if you pay for the

advice you'll immediately start getting these returns - you would be making over 300% annually (compounded). Hey, that would sure be great, I wouldn't have a day job anymore. And if it were true, wouldn't you think that the person trying to sell it to you would forget all about selling and just watch his or her money triple every year? But they're not doing that, which should give you a pretty good idea about where the money's being made, namely from you.

I'm not trying to say that you should never pay for advice, just that you should not overpay for advice. Some advice, especially the sort that comes from $15 books on personal finance and investments can easily be worth ten times that sum. Advice from your CPA or tax advisor will probably cost you a 3 or even 4-digit figure, but since it's specialized to your case and comes from a professional, that's probably money well spent.

It seems appropriate to close this article with a quote that I learned from Robert Heinlein books, but it's probably older than that:

TANSTAAFL - there ain't no such thing as a free lunch.

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