Recommendations from friends, family, neighbours or even colleagues at work have become a significant influence on many aspects of our lives, including investments. Friends often share their insights about promising stocks, real estate opportunities, or start-up options, believing they are offering sound financial wisdom.

However, these well-intentioned suggestions can sometimes lead to disastrous outcomes, both financially and emotionally, and can even cost relationships.

Let’s face it: investing is inherently risky. While friends may have the best intentions when sharing their latest financial ventures, the reality is that many of these recommendations don’t turn out as expected.

The primary issue with friend-based investment recommendations is often the lack of comprehensive research. Unlike financial advisers, who typically conduct extensive analyses and have years of experience, friends may base their recommendations on surface-level information or personal experiences.

For example, a friend may suggest a stock based on a hot tip they overheard at a party or a recent article they read online. While these insights can be interesting, they often lack the depth necessary for sound investment decisions.

Although I have not taken advice from friends, family or neighbours, I did take advice from someone I met – and it didn’t go well. Here’s the story: many years ago, my husband and I were at an all-inclusive resort in Mexico when we met a very savvy (or so I thought) accountant. Over the week, my husband I got to know him, chatting with him and his wife over dinner or drinks at the bar.

I remember him telling me about a stock he had been buying and selling for several years, claiming to have made substantial money. Needless to say, I went against my golden rule of never listening to investment self-promoters and bought some of the stock. And lo and behold – wa wa waaaaaa – it dropped to its lowest point, and I never made a darn thing off it.

Hopefully, you’re not as foolish as I was, but it’s essential to understand how social dynamics can cloud judgment. When close friends invest together, there can be an unspoken pressure to conform to the group’s decisions. This camaraderie can lead to a herd mentality, where individuals ignore personal research or gut feelings simply to align with friends.

When the investment flops, feelings of regret and embarrassment can complicate the relationship, potentially straining friendships that once thrived on mutual trust and shared interests.

Emotional attachment further complicates these situations. Friends may feel the need to hold onto a failing investment longer than they should, simply because they trust the person who recommended it. The fear of appearing foolish can prevent individuals from cutting their losses and moving on. This emotional entanglement can turn what was meant to be a trusted recommendation into a costly mistake.

Ultimately, when it comes to investing, it’s better to work with a professional who can provide valuable guidance and expertise to help you make informed decisions and achieve your long-term financial goals.

Benefits of working with an investment adviser

1, Expertise: an investment adviser has in-depth knowledge of the financial markets, including stocks, bonds, mutual funds, and other investment options. They stay up-to-date on market trends and can provide tailored advice to suit your needs.

2, Personalised investment strategy: An investment adviser will work with you to create a customised investment plan that aligns with your financial goals, risk tolerance, and time horizon.

3, Diversification: an adviser can help you spread your investments across different asset classes, sectors, and geographic regions to minimise risk and maximise returns.

4, Risk management: an investment adviser can help you identify and mitigate risks associated with your investments, such as portfolio volatility and inflation.

5, Accountability: working with an investment adviser provides accountability, helping you stay on track with your investment goals and avoid costly mistakes.

However, it is also important to recognise that not all investment or financial advisers are identical. They may have different credentials or focus on areas that align with their expertise. Therefore, it’s essential to do your homework before choosing an adviser.

Key characteristics and qualifications to consider

First and foremost, look for an adviser with a strong educational background and professional certifications, such as a Chartered Financial Analyst or Certified Financial Planner designation. These credentials demonstrate a high level of expertise and a commitment to ongoing education.

Experience is also crucial. Seek an adviser with a proven track record of success and at least five to ten years of experience in the industry. This will give you confidence in their ability to navigate various market conditions and make informed investment decisions.

Additionally, consider an adviser’s investment philosophy and approach. Do they specialise in a particular area, such as retirement planning or wealth management? Are they fee-based or commission-based? A fee-based adviser may be more incentivised to act in your best interests, as their compensation is not tied to specific investment products.

It’s also important to assess an adviser’s communication style and availability. Do they take the time to understand your financial goals and risk tolerance? Are they responsive to your questions and concerns? A good adviser should be able to explain complex investment concepts clearly and concisely.

By considering these factors, you can find an investment adviser who is well qualified, experienced, and dedicated to helping you achieve your financial goals. Remember, your financial future is at stake, so take the time to research and interview potential advisers before making a decision.

At the end of the day, it’s best to keep friends as friends, family as family, and your investment adviser as your financial guru.

• Carla Seely has 24 years of experience in the international financial services, wealth management and insurance industries. During her career, she has obtained several investment licences through the Canadian Securities Institute. She holds the ACSI certification through the Chartered Institute for Securities and Investments (UK), the QAFP designation through FP Canada, and the AINS designation through The Institutes. She also holds a master’s degree in business and management