Many of us learned about finances through trial and error. No one taught us how to file our taxes, what types of insurance we should choose, or how to handle our 401(k). We made our decisions, researched on our own, and learned from our own mistakes.
The problem is, when it comes to a financial plan, there are some mistakes you can’t afford to learn from.
Here are 3 reasons to opt for a financial advisor as opposed to a do-it-yourself approach:
1. The complexity of information
As people become more successful, they often reach increasing levels of complexity in their lives. They know what they know, but they also realize that there’s a lot that they know they don’t know. While they can learn new information, there remains an even larger—and more important—gap in knowledge: the things they don’t know that they don’t know.
You can’t google the things you’re not aware even exist.
Information is always changing in financial markets, and research is forever evolving regarding investment strategy. On top of that, tax laws go through significant changes on a regular basis as leadership changes take place in Washington. Keeping up with the changes and how to respond to them is a full-time job.
It’s important, however, to choose an advisor with the proper education. The CFP® and ChFC® certification programs give advisors a broad knowledge range in tax, investing, retirement planning principles, estate planning, and more. This knowledge is essential for coordinating a plan that considers a person’s entire financial life.
Without this knowledge base, there is room for significant error.
We frequently find that people come to us with broken portfolios, only after losing hundreds of thousands of dollars from their improper investment decisions. We also see all kinds of insurance policies that are costing people thousands, but there’s no way to get out of them.
A financial plan with a well-trained advisor can help you avoid these mistakes on the front end.
2. Psychological biases and emotions
Investors also struggle with their own instincts and emotional biases that—studies show—lead them to get returns that have been significantly below market returns throughout time. While major portfolio changes are rarely called for, a properly managed portfolio will require regular ongoing maintenance throughout the course of a year—it is not a part-time job.
Many of the retirement-ruining mistakes that people make are not related to numbers, but to emotion.
Part of a financial advisor’s job is to be the objective voice of reason. An advisor with years of experience has seen it all. They’re not affected by the visceral headlines of the media, and they can coach you to stick with the plan.
Investors typically have access only to the retail investments offered by big fund companies. By working with a professional, they can get access to potentially lower-cost, institutional options.
These higher-quality funds often have minimum investments of 5 million—for just one area of the market. To be properly diversified, an investor would need over 60 million on the front end. Advisors can give the average investor access to these funds that are otherwise only available to the largest of investors.
Not only that, but a proper portfolio must be frequently rebalanced while considering tax ramifications. Not something the average investor can do—or should do.
Finally, a properly trained advisor has access to the funds and the tools needed to implement the Nobel-Prize winning investment research. This research has shown that there are certain factors of investing which determine where most returns come from. Few investors are aware that this research exists, let alone know how to apply it.
So, engage with us to build a proper financial plan.
Ready to meet with us more personally? Schedule a virtual (or in-person) meeting here.
By Paul Winkler
*Advisory services offered through Paul Winkler, Inc. (‘PWI’), a Registered Investment Advisor. PWI does not provide tax or legal advice: please consult your tax or legal advisor regarding your particular situation. This information is provided for informational purposes only and should not be construed to be a solicitation for the purchase or sale of any securities. Information we provide on our website, and in our publications and social media, does not constitute a solicitation or offer to sell securities or investment advisory services, or a solicitation to buy or an offer to sell a security to any person in any jurisdiction where such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction.