Hire an Advisor or DIY?
Do you really need the help of a financial advisor? Should you hire an advisor or DIY? We hear these questions a lot. And our response is usually the same:
If you’re on top of the market, if you’re able to make decisions about your finances that are unbiased and not based on emotions, if you have the time to stay abreast of new tax laws and regulations, if you know the ins and outs of Social Security, Medicare and other retirement programs and if you’re familiar with local programs and investment strategies that will help put you in the best position to reach your goal, then maybe you should do it on your own.
However, in reality, only a small section of people fall into this category. And if you’re not one of them, it can be wise to work with someone who does.
In our experience, people often make emotional decisions when it comes to their money, which is dangerous. We also see people taking advice from someone they know, even though the advice might not be what’s best for their specific situation. What works for a friend, co-worker or family member might not work for you – he or she may be married and have dependents to worry about when you don’t, or vice versa. They may have more money to lose, or less.
Deciding to handle your financial planning on your own can be a wise choice, but it’s usually not for everyone.
DIY Financial Planning Takes More Time Than You Think
A lot of people ask themselves, why should you hire a financial advisor? After all, you might be looking at stock market returns that are pretty hefty for the year. As of mid-October, for instance, the broad-based S&P 500 had risen more than 16 percent on the year, outpacing its historical annual average of about 11.7 percent. (The historical average is an average of all years from 1973 to 2016.) This being the case, it’s likely that your investment and retirement accounts look pretty healthy.
However, even if you’re temperamentally suited to do-it-yourself, DIY financial planning can take much more time than you think. A financial advisor can take this burden off your shoulders.
Just learning about what to look for takes time. Say you are building a retirement portfolio and enjoy researching stocks. But the more research you do, the more time it takes. Plus, you’re unsure of exactly how much you should be saving. You can spend hours looking for handy rules of thumb to establish your goals. Then, you spend additional hours breaking down how much you need to save in a year to meet that goal.
And that’s only one aspect of a financial plan. Suppose you just had a child and want to research college savings plans. Hours can be spent researching plans. Tax implications. Pros and cons. Should you buy real estate in the town where your child might go to school, to hedge against cost of living? What about estate planning?
Because financial advisors deal with these questions all the time, they can walk you through financial decisions and provide good advice. How much you should save for retirement, for instance, depends on estimates of your needs, which an advisor can calculate both for your current situation and prospective scenarios. A good financial advisor will be familiar with the tax situation in your state. (Retirement planning in Towson, MD, for example, is different than in other areas.) An advisor can also help address pros and cons of various decisions.
Schedule a free, no-strings-attached conversation with Oliver Wealth Management to see where you’re at.
Financial Advisors Can Offer Unbiased Advice
Another benefit of working with a financial advisor is he or she can offer unbiased advice. It’s all too easy to get bound up in emotion when thinking of your financial life.
Most dangerously, perhaps, people tend to react negatively when the market falls – as sooner or later, it will. It is the nature of stocks to fluctuate up and down. Bear market corrections of 20 percent or more will occur periodically. When this happens, the most perilous action you can take is to panic and sell stock that has fallen. Why? Because if stocks have good fundamentals, such as strong profits and experienced management, they usually right themselves again.
When markets have done well, it’s all too tempting to figure you’re on Easy Street. Your balances are big. Why not withdraw some and spend? A trip, a new house, large graduation gifts – why not?
Spending a lot in good years may leave you behind on the achievement of long-term goals. A financial advisor can help you focus on long-term goals and formulate a plan to help you reach those goals. Spending now may leave you behind in retirement and other objectives.
It’s all too common to ignore one or more of the facets of a comprehensive financial plan – or frankly, not even think about items, such as an estate plan, until it’s nearly too late. Unbiased doesn’t only mean without emotion; it means giving equal weight to all aspects of a financial plan, including those you may not think about every day.
The More Assets and Dependents You Have, the More Complicated It Can Get
As we age, our financial life can get complicated.
Your estate plan, for instance, may need to include not only portfolio and retirement accounts, but houses, other property and your share of any business you own. It may need to include spouses, ex-spouses, children, stepchildren and grandchildren. You may need to think long and hard about who to include in your will and what the bequest should be.
When working with a financial advisor, make sure you have a year-end review that includes any life changes during the year. Marriages, births, divorces and business acquisitions and dispositions can all affect a financial plan. You may, for example, welcome a grandchild but not think particularly about any contributions you want to make financially. A year-end review can help ensure that contributions to a college fund or a savings plan are taken care of.
While it can be tempting to take on your own financial planning, when you ask yourself, hire an advisor or DIY, think about what that really entails.