With the market’s increasing volatility, you may be wondering whether or not you need a financial advisor. While investing can be relatively straightforward, there are a multitude of financial questions that a financial advisor can help decipher.
Do-it-yourself investing can be easy with an abundance of online investment education options. For those who simply want to build up a retirement portfolio or profit from the long-term growth of the U.S. and global economies, then DIY investing is accessible. With a modicum of study and research, relatively intelligent investors can DIY it.
Financial advisors or planners guide individuals and recommend investments. They also assist with other financial matters and can create financial plans and recommend investments. Some advisors delve into tax and estate planning as well.
Read on for a breakdown to help you decide whether you need a financial advisor or can manage your investments on your own.
Strategies for the DIY Investor
Younger investors can get started investing with one target date investment fund. Many 401k plans offer this option, and Fidelity, Vanguard and other investment houses offer a slew of target date funds.
A target date fund owns a diversified group of mutual funds from various asset classes, like U.S. and international equities and bond funds. The asset mix begins aggressively with a greater proportion of stock assets and adjusts as the target retirement date approaches. If you’re age 40 and expect to retire at age 65, then you might choose a 2045 target date retirement fund. As 2045 approaches, the fund will ramp up bond funds and reduce stock exposure.
Other DIY investors might create a low-fee simple exchange-traded fund portfolio by choosing several diversified ETFs. You might add a real estate investment trust (REIT), commodity fund or specialized sector funds.
For the curious and ambitious individual, there are many stock screeners and educational portals to help in choosing individual stocks. But be aware that stock picking is riskier than investing in diversified funds.
If you have more complex investment needs, are older, inherited some cash, or want ongoing financial guidance, then you might need a financial advisor.
When You Need a Financial Advisor
If you’re seeking planning services that incorporate not only investing, but tax and estate planning, you’ll need a financial advisor. Those with a complex financial situation will need a financial advisor.
And when approaching major life changes like marriage, the birth of a child, or retirement, hiring a financial advisor is a wise move.
If you come into a large sum of money, like an inheritance or insurance payout, you also might seek out a financial advisor for direction.
And finally, some individuals have the capacity to manage their own assets but simply prefer to outsource that job to a financial advisor.
Understand Your Financial Advisor Choices
Once you’ve determined that you need a financial advisor, choosing the right one is next.
Financial advisors come in many varieties, with an alphabet soup of classifications.
The key factors to understand before choosing a financial advisor are: whether he or she is a fiduciary, how the advisor is compensated, the advisor’s credentials and whether the individual has any “black” marks on his or her record.
The rock-bottom requirements of any financial advisor are that they are registered with the securities and exchange commission (SEC). Visit BrokerCheck to help evaluate an advisor and their firm.
If you don’t have a mid-six figure-investment portfolio, you may be limited in your choice of financial advisors. Some fee-only financial planners require $300,000 or more to manage your money.
Those with smaller portfolios might invest with a robo-advisor. Firms like Betterment or Ellevest offer automated investment management and access to Certified Financial Planners. Fees for these robo-advisors are typically lower than those of typical financial planners.
Advisors who charge commissions on the buying and selling of securities can be appropriate for smaller investors, although consumers need to be aware of a potential conflict of interest. These investment brokers typically don’t get paid unless you trade. This incentivizes them to encourage buying and selling.
DIY investors who need limited financial help can always hire a financial advisor on an hourly basis. This is an economical compromise alternative to paying for ongoing financial advice.
In Conclusion
Whether you need a financial advisor or not isn’t a black and white issue. There are times in life when hiring a financial advisor makes sense. Other individuals have no interest in managing their own finances and are happy to pay for financial advisory management. In the end, those investors just starting out can usually go it alone while benefitting from online guidance and resources. Just make sure the investment advice is reputable and comes from a well-regarded source like Vanguard, Schwab or Fidelity.
Those who need a financial advisor, make sure to vet the advisor, understand their fee structure and investment philosophy. Finally, consider your advisors personality and ensure that you feel comfortable with him or her.
Investing can be a profitable way to grow your wealth for the future. Learn how to DIY it or choose a pro that fits your needs.
Barbara A. Friedberg, MBA, MS is a veteran portfolio manager, expert investor, and former university finance instructor. She is editor/author of Personal Finance; An Encyclopedia of Modern Money Management and two additional money books. She is CEO of Robo-Advisor Pros.com, a robo-advisor review and information website. Additionally, Friedberg is publisher of the well-regarded investment website Barbara Friedberg Personal Finance.com. Follow her on twitter @barbfriedberg and @roboadvisorpros. As of this writing, she did not hold a position in any of the aforementioned securities.
