I’ve been posting my experiences using the Motley Fool Fool Premium service. We’ve covered account setup and recommendations, but one area we haven’t covered here yet is the quality of advice you get from Fool Premium recommendations. And I’m NOT talking about specific stock recommendations, but rather the operating philosophy itself.
If Motley Fool services are meant to help an investor–especially a NEW investor–make smart choices about where to invest, knowing the rules of engagement the team uses to give you that advice is VERY important. Why? Because investing involves risk and good investors don’t shy away from acknowledging that.
An investment advice situation where the people you trust to give you the advice don’t respect the basic nature of investing? That equals bad news for you, it just might take a while for it to catch up to you. But eventually, it will. That’s why it’s a VERY good idea to make sure the people giving you financial advice respect your money and the hard work that goes into earning it before turning that cash into an investment.
Does Motley Fool Investment Advice Hold Up?
In the Stock Advisor section, there are articles that appear in the sidebar–some of these link to informational videos, others may link to articles such as the instructional piece for new investors who want to choose starter stocks in 2021. What is the quality of the investing advice you find in these videos and articles?
Good Advice Goes A Long Way
When I read through and watch these resources, I find some very good advice for first-time investors that makes me far more inclined to take their OTHER advice on specific investments.
Good investment advice includes a healthy dose of respect for issues related to asset allocation and the need to balance risk with stability in a typical stock portfolio. It is never good financial advice to suggest an investor flock to riskier investments at the expense of portfolio stability. You want a mix of risk and stability based on your own personal comfort level with risk.
Some investors are risk-averse and will gravitate toward more typically stable holdings such as certificates of deposit, stocks that pay dividends, etc. Others may be inclined to add risk with arbitrage funds, certain mutual funds, etc. Some who enjoy high risk may put some of their funds into day trading, high-risk stocks, etc.
Motley Fool investment advice in this area? Don’t over-invest in any one area; “… it’s kind of like making sure someone doesn’t put all of their eggs in one basket. Investors should make sure that they have exposure to different areas of the market and different kinds of investments.”
This is the kind of advice you should get from ANY financial advisor. But what else? Is the investment advice you’re currently getting inclusive of a notion that you should be VERY picky about risk balance? Motley Fool advice includes asking the following types of question:
“…(D)oes the portfolio have fairly balanced exposure across multiple sectors of the stock market, or is concentrated in one area? If a portfolio’s entire stock holdings consist of 27 biotech companies, that’s really not something we would consider to be a well-diversified portfolio”.
Motley Fool advice in this area? You should not shy away from having strong opinions about certain stocks or types of stocks when setting your priorities, but investors should be wary of over-emphasizing their favorites.
In short, I find the general philosophies informing the Fool Premium advice to be sound, smart, and cautious enough for the new investor to follow without worry they are being set up for failure by people who have forgotten what it’s like to be new to investing overall.