Unsuitable investing  

redmustang91 57M  
8729 posts
7/14/2005 8:09 am

Last Read:
3/5/2006 9:27 pm

Unsuitable investing

Stockbrokers have a duty to learn the risk tolerance and goals of their customers and make reasonable recommendations based on all the facts. There is a margin for error and they can get away with putting 5 to 10% into very speculative stuff, like options or penny stocks. The major debacles occur when there is a crash in internet stocks as occurred in 2000 to 2002 and most or all of the account is in speculative stuff. 2003 was a great comeback year but many had fled to bonds and got creamed again.

Too much trading, called churning, eats too much of the account in transaction costs. Margin can make things worse by increasing the risk or leverage and the interest charges add to the expense.

Better to be patient and get rich over decades rather than plunge in too far and fail quickly.

Always amazing that people will spend more time picking a set of tires or refrigerator than investments that provide for their retirement.

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