Reviewed by Aug 27, 2020| Updated on
Investment advice refers to suggestions or recommendations to any prospective investor who seeks to put money into any financial product or instrument. The advice is generally for consideration in return by way of consultancy fees or any fee in terms of a percentage of the assets or investments. The investment advice should come from a professional who is a certified advisor.
Understanding Investment Advice
- Investment advice is a suggested plan of action based on a study of various factors which are investor specific and external factors. An individual investor may look for investment advice keeping in view their own life’s short-term or long-term financial plans. The investor specific factors include age, annual income, risk appetite and future family expectations.
- Various external factors also influence an investment decision. The interest rates prevailing in the economy. The expectation of a change in interest rates due to inflationary pressures or otherwise, forex market changes and changes in economic policies also affect the future value of investments. The factors may be domestic or international.
- Among international factors, geopolitical issues or trade wars affect the liquidity and trade thereby lowering the returns from investments. Financial markets across the world reflect the adverse trade conditions, corrections in prices of commodities and discount the future returns on both equities and fixed income securities.
- In the case of investment in commodities, the prices of commodities such as metals mirror the prices in the international markets. For example, in the case of prices of gold, silver, zinc, iron and similar metals traded in foreign markets, the domestic prices reflect the increase or decrease in the international markets.
Investment advice should consider the factors relevant to arrive at an investment decision. The evaluation should be technical and objective without any bias. One of the important factors is the tenure of the investment. The financial calculations should project the present values of the future cash flows from the investments. The investment advisor should analyse and present the data and comparisons to enable decision making.