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After I had been on my own for a few years, it occurred to me that I really needed to start investing for my future. Not many people think about investing or retirement early enough which leads them to have to work years past the age they hoped to retire.
Despite having a firm grip on my personal finances, I had no idea where to start with investing. This is where a good financial planner came into the picture.
I hired a financial planner to help me define my goals and make a concrete plan to meet them.
He advised me on how much I should be investing now to reach my goals in the years ahead, and he helped me figure out which investment products were going to be the right fit for me. It was money well spent to have someone take the guesswork out of investing for me!
If you have been thinking about investing, you might be wondering whether you should hire a professional to get you started. This is a highly personal decision based on your knowledge of investing and your understanding of your finances.
This breakdown will give you more information on what a financial planner is, how they can help, and the perks of hiring one versus going it solo.
What is a Financial Advisor or Personal Finance Coach?
If you think you could benefit from some professional advice relating to your finances, you might want to consider hiring a financial advisor or a personal financial coach.
Understanding the most significant differences between these two types of professionals can help you make the right addition to your financial team. Learn more about who you should hire before you start to make your phone calls.
Personal Financial Coach
A personal financial coach is there to help you develop stronger habits when it comes to your money. They look more at your behavior surrounding money, both spending and saving, rather than focusing on an investment portfolio.
They help you set reasonable financial goals and make a firm plan to meet them. Think of them as a personal trainer for your finances.
If you want to start investing but have no money left at the end of the month, a personal financial coach might be the right move for you. A good coach will help you identify common patterns that hinder your ability to save. They can also help hold you accountable for sticking to your plan day in and day out.
A financial advisor has some of the same roles as a personal financial coach with a few added responsibilities. They are there to help you develop a strong financial plan to reach your long-term and short-term goals. If you want to start investing to plan for retirement or a child’s college fund, they can help you determine just how much you need to be saving on a monthly basis.
In addition to creating a plan with you, they also offer advice on the best type of accounts and investments for your unique financial situation. They can offer advice on different types of insurance and even estate planning.
Part of their job responsibility is to educate you on your options and the products that are available to you.
When you first meet with a financial advisor, they will try to get a clear picture of your current finances and health. You will be asked questions about your current assets, income, expenses, and any investments you currently have.
There will be questions about your goals as well as your tolerance for risk in future investment products.
With all of this information, they will come up with a detailed financial plan that you can refer to for years to come. You may make decisions to tweak it a bit as you go along, but it gives an overall picture of where you are and where you would like to be years down the road.
A financial advisor can help you to just come up with this financial plan or they can offer assistance with your investment portfolio. This is why many people come to see them so that they can have professional advice on the best investments for their goals.
They can help execute trades and facilitate investments on your behalf. You always have the right to ask questions and to monitor the fees you are paying for each individual asset.
You will meet regularly with your financial advisor to review your assets and to update you on how your portfolio is doing. They will take this time to review your goals with you and update anything that has changed in your life circumstances such as income.
This could be a good time to discuss any major changes to your investment portfolio.
There are two categories of financial advisors you should be aware of. Always ask whether your prospective financial planner is a fiduciary or whether they adhere to the suitability standard. A fiduciary must give advice that is in the client’s best interest.
On the other hand, advisors who adhere to the suitability standard only have to offer products that are deemed suitable for your needs. A fiduciary is always in your best interest.
How Much Does It Cost?
As you may have already suspected, a financial advisor is going to have some cost to you. Many people find that the investment in a financial advisor is well worth the money spent. They can offer a lot of advice that you may not otherwise have known and are far more experienced with investment products than the average person will be.
There are two primary ways that a financial adviser may be paid. These are commonly referred to as a commission-based model or a fee-based model.
If your advisor adheres to the suitability standard, there is a good chance that you will never receive a bill at all from your financial advisor. This is because they receive a commission based on what products they sell to their customers.
While it can be nice to feel like you are saving money and still receiving professional financial guidance, you need to pay careful attention. A lot of the financial products that earn your financial advisor the largest commissions come with higher fees for you.
You may be able to save money on fees by going with an advisor who charges on a fee-based model.
Most fiduciary financial planners work off the fee-based model. In this type of situation, you will be charged either by the hour or by a percentage of the assets under their management. Financial advice will often run you between $100 and $300 per hour.
The percentage of your assets under management fee is usually around 1 percent. As you might imagine, these fees will vary with experience and qualifications.
Oftentimes, you can find a financial advisor who offers free initial consultations to determine whether they are a good fit for you. This is a way to interview potential financial advisors, find out more about their fee structure, and start to discuss your financial goals.
Keep in mind that there is a difference between fee-based and fee-only. A fee-based advisor will earn their hourly rate for offering advice to you while still earning a commission on the sale of certain products. On the other hand, a fee-only advisor will earn no commission at all.
This ensures that they are offering you only products that are in your best interest instead of those that have the highest commission payout for them.
How Do They Help with Investment Portfolios?
Many people wonder how a financial advisor can actually help with their investment portfolios. Most professionals will start by taking a look at your overall financial health to help you make some saving and budgeting goals. However, they also take this a step further by helping you make a plan to actually meet those goals.
A good advisor is there to educate you on the types of accounts and products you can invest in. They can explain the different between a mutual fund, an ETF, stocks, and bonds. Based on the goals you set together, they can recommend which investment product is going to be the right fit for you.
One of the things they take into account is your asset allocation and your tolerance for risk. For example, someone who is very close to retirement may require less risk tolerance.
This means you would invest in products that are not extremely volatile because you will need to access your money sooner rather than later. On the other hand, someone who is far from retirement can tolerate a bit more risk which often comes with bigger gains when you hold your position for the long haul.
Another aspect of professional financial planning is tax considerations. Different types of investments may come with certain tax consequences, either now or in the future when you go to withdraw your funds.
A lot of people seek out financial planning to help them along on saving for retirement. The tax implications of your investments can make a huge difference in how much money you will have when retirement finally arrives.
They should be there for you, making themselves available to answer any and all of your questions. Financial planners often meet with their clients to review performance and goals at least once a year to ensure that you are still on track.
Perks of Having a Financial Advisor
Are you wondering whether hiring a financial advisor is the right choice for you? If so, you aren’t alone. Many people think about bringing on a professional to help them make wiser financial decisions when it comes to their investments.
I know I was personally on the fence before I met with a financial advisor for the first time. However, meeting with my financial advisor helped me to clarify my financial goals and make concrete plans to achieve them.
He helps me to manage my investments with plans to change my asset allocation as I get closer to retirement age. While I consider myself well-versed in money management, he still shared some things I had never heard before and offered advice to help me reach my longer-term goals.
Here are a few of the perks of hiring someone to help you invest.
Creating an Investment Strategy
Think about how much time you really have to invest in researching your investment portfolio. Do you have time to research every investment product and find the funds, stocks, or bonds that will help you achieve your goals? A lot of people will try to start their own investment strategy and become easily overwhelmed by all of the options.
Learning in your free time takes a tremendous amount of time and you are losing out on valuable weeks, months, or even years where your money could be working hard for you in an investment portfolio.
Hiring a financial advisor allows you to gain access to their vast knowledge of what the best investment products will be.
Their advice is tailored specifically to you, your goals, and your risk tolerance. They know how to minimize your taxes and maximize the impact your money can have regardless of what your overall goals may be.
One of the biggest issues for those who decide to strike it out on their own is the propensity to make emotional decisions. When the stock market is doing well, you rush to purchase shares of your favorite stock.
The next day, you notice that shares are declining in value so you quickly sell as many of them as possible. One week later, things are looking up again and you missed out on the opportunity.
It’s normal to feel conflicted about buying and selling when the decision is solely up to you. However, research has proven that you have to think long-term if you want to be a successful investor. When you hire a financial advisor, they will be monitoring your positions on your behalf.
They are used to the volatility of the market and are unlikely to buy and sell based on the same emotions you are likely to experience. This leads to better gains long-term.
Perks of Working Alone
For a long time, I managed my own investment portfolio with the help of the internet. This is definitely an option for someone who has a bit of savvy and an intimate knowledge of the various investment products available to them. A financial planner is not the right choice for everyone, even though I personally prefer to make good use of mine. Here are a few perks to going it alone.
The most obvious reason to manage your investment portfolio on your own is to save money. You will be paying for a financial advisor whether they operate on commission or on a fee-based structure.
Instead of paying for financial advice by the hour, you can go it alone by referring to books you find at the local library and articles on the internet. However, you should bear in mind that your time is valuable too.
Financial Advisors May Not Beat the Market
Beating the market is incredibly challenging, even for professional investors and money managers. Financial advisors are not always likely to beat the market. You will be paying for their professional financial advice, but they may not be able to outsmart the stock market.
While they can help you increase your wealth, it may not be the landslide amount of money you were dreaming of.
They are there more to help you manage your money, set up a unique investment portfolio to meet your goals, and prevent you from making emotional decisions. They do not strive to beat the market, though they do like to get the biggest returns for their clients.
They Get Paid Regardless of Results
A financial advisor is there to make a living, even if they consider themselves a fiduciary. Their fee structure is not based on how much money they earn for you. Instead, it is either based on their hourly rate or the amount of money you invest with them.
They could lose all of your money and still get paid for the work they put into your investment portfolio.
Keep in mind that you could just as easily lose your own money by playing at the stock market and making emotional decisions. While a financial advisor may be an added cost, they can help you to make the smartest decisions.
They want to keep you as a client and have your positive referral to your friends and family. A financial advisor will be motivated not to lose your money in a shady investment portfolio.
Hiring the Right Professional
Whether you want help managing your money or creating an investment portfolio, you need to hire the appropriate professional. A personal financial coach can help you set achievable goals while a financial planner can do the same in addition to helping you establish an investment strategy.
Evaluate whether your chosen professional is a fiduciary and how they get paid to make sure you are trusting the right individual with your money.
A financial planner can help you to create an investment strategy that works for you and takes the emotion out of your investment decisions. On the other hand, working by yourself saves you money and may yield the same results as what a financial planner can achieve.
If you think that you could benefit from hiring a financial planner, be sure to ask lots of questions about how their process works and how they charge. This guide will help you choose the right professional for your savings goals!