Low-fee investing can be a two-edged sword because while no one likes to pay fees that compromise their portfolio’s continued growth, there is also wisdom with having an experienced and trained financial advisor. The money you spend in fees could very well result in returns that replace your good investments with great investments and change your retirement lifestyle from sufficient to comfortable.
When it comes to deciding whether or not to hire a financial advisor, there are two main factors to consider.
1. First, you have to decide on the kind of financial advice you need.
Research shows that advisors can add value in two different ways: they can be very helpful with managing your investments, and they can provide expertise with financial planning. Of course, the value of these benefits depends largely on each investor’s individual situation, experience, and knowledge. The quality of the advisor you select is critical because there are a wide range of abilities, qualifications, and costs.
Working with an investment advisor makes sense if any of these fit your circumstances:
You have a large amount of money in your investment portfolio
Your finances are complicated in the areas of retirement, taxes, and estate issues
You lack a sophisticated knowledge of investing
Your time is limited or you prefer to spend your time on other tasks and pleasures
2. Secondly, you must measure the value of the financial advice you’re receiving.
There is a wide variety of ability among financial advisors, and you will have to identify the difference between poor advice, mediocre advice, and good advice. Experience, training, and knowledge vary greatly, and the expertise of financial advisors may range from mutual fund salespeople with minimal qualifications to highly-trained experts with advanced designations such as certified financial planner (CFP) and chartered financial analyst (CFA).
Should you choose to be a do-it-yourself investor you will need to have, at the minimum, basic investment knowledge and a strong sense of confidence in being your own resource. You will have to be fairly well-read with asset allocation and know how to conduct periodic portfolio rebalancing, and you will need to have the time to regularly review and manage your investments. Having convictions for staying the course when markets are moving rapidly up and down is also a necessity because vacating your investment positions prematurely could have a significantly deleterious effect on your long-term returns.
As a do-it-yourself investor choosing a passive investment approach, you’ll need to be able to select individual ETFs to satisfy the requirements of your asset allocations. You will also need to know how to select the investment strategies that will work best for your future, such as “value” or “momentum” ETFs, and be aware of avoiding investments in fads or opportunities too risky for wealth preservation.
If your investing will take an active approach, you will need to be even more educated with selecting investments and knowing how your selections work together in synergy, protecting your downside risk while also giving you a trading edge with wealth appreciation. As you can imagine, this will take a great deal of time and there are very few individual investors capable of this level of ability and commitment. Relying on the media for investment insight may often be misleading, so a solo investor really needs to know what he or she is doing because the pain of making a serious mistake can be so huge.
When it comes to financial planning, a CFA can provide you with information you don’t even know you don’t know, and can be that critical advisor making the difference between having to work into your retirement years to create the wealth you need, or securing your financial future in a reasonable time so you can enjoy the life you’re working so hard to attain.
Ultimately you’ll have to decide whether a financial advisor is worth the cost or not. Think of it in terms of having a personal trainer helping you when you work-out at the gym. Almost everyone would benefit from having a fitness advisor guiding them to health. Similarly, you can have a financial advisor guiding you to wealth.
Please contact us so we can review the possibilities for securing and increasing your personal wealth while enhancing your retirement. Thank you!
Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM