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Do you have enough income that you’re no longer living paycheck to paycheck? Are you maybe even considering saving some money for your future? First of all, good for you! But now what? Knowing you want to save for retirement and actually executing on the idea are two very different things, and if your plan is to stick some money in a savings account every now and then and forget about it, you’re adulting wrong.
You don’t need a financial advisor to tell you that the piddly interest you’ll earn from a savings account is not enough to keep up with inflation. If you truly want your money to keep pace with or even exceed inflation (you know, so you can retire comfortably and enjoy a few years of relaxation before you drop dead), you’re going to need to invest it.
Could you invest your money yourself? Sure. However, there’s a reason universities offer graduate degrees in economics: investing is complicated, and understanding how to do so in such a way that your money will grow enough over the course of your life to allow you to retire (without potentially losing everything) tends to require knowledge and understanding that goes a bit beyond the Googleable.
Keep reading for a short list of reasons why you may want to consider hiring a financial professional to ensure you get the most out of the money you invest.
You’ll earn more money
Good financial advisors spend their days (and sometimes nights) tracking and thinking about global economic trends and conditions. They’re professionals with expertise in their fields.
This means that, as a general rule, they will be better at investing your money than you. Think about it: if they weren’t, the profession would not exist. The reason people continue to hire financial professionals to manage their investments is because they make more money than they would if they did it themselves.
Sure, it’s possible that you might get lucky and hit it big with a particular investment, but your strategy for building a foundation for your financial future should not equate to playing the lottery. Hiring a good financial advisor you can trust will ensure that your money is being invested in the right way to meet your long-term financial goals.
Most people hire someone else to cut their hair because they know it’s going to look a heck of a lot better than if they did it themselves. As important as haircuts may be, securing your financial future is probably even more important, so it makes sense to hire someone who definitely knows what they’re doing.
Objectivity is important
Admitting you made a mistake is hard. As is recognizing when it’s time to jump ship on a plan that simply isn’t working. Sports fandom is a perfect example of this: even if your team has the worst record in the league, you don’t abandon them for a team with a better record. That would be blasphemy of the highest order.
This type of sentiment has no place in financial planning, and yet, when managing one’s own assets, it tends to happen anyways. You may love a particular stock — perhaps it was the first you ever bought, or it’s a company that you truly believe in. Unfortunately, just because you love something, that doesn’t mean it’s worth keeping, or that it has any reasonable chance of rallying in the fourth quarter.
This is one reason hiring a financial planner is a great idea: they will not base decisions that impact your financial future on silly little things like feelings. Their job is to provide you with sound, objective, financial advice and (assuming you’ve hired an advisor you can trust) that’s exactly what they do.
If you hire a financial professional, you may end up with less money invested in places whose names you’d want to get tattooed on your back, but you will end up with more money in the long run.
Saving time
You may be fully capable of making intelligent investment decisions all by yourself, but investing is not like cooking a rotisserie chicken — you can’t just set it and forget it. If you truly want to maximize your money’s growth over time, you actually need to manage it, which requires keeping up to date on trends in markets and what’s going on with the global economy.
If you like to nerd out about the ups and downs of global markets, wonderful — perhaps you should manage your own finances. If you’re like most people, however, and simply want to know that you’re setting yourself up to be able to retire comfortably at a reasonable age without having to master and keep up to date with a whole new field of knowledge, hiring an advisor is the way to go.
Capitalize on opportunity
Depending on what’s going on in the world, it might make more sense to invest in stocks or bonds, gold or cryptocurrencies, or some mix of all of the above. Because good financial advisors keep themselves up to date with global economic trends and circumstances, they’re in an excellent position to recognize and take advantage of opportunities that present themselves in financial markets.
So, even if you feel comfortable making investment decisions for yourself that won’t leave you destitute upon retirement, you may be paying hidden opportunity costs. Unless you’re keeping up with the trends and have the knowledge and savvy to see the opportunities yourself, you’re going to miss out on potential windfalls.
What’s more, you may not even be aware of all of the investment opportunities that exist for you.
Adaptable plans for changing circumstances
What’s the difference between an Exchange-traded fund (EFT) and a mutual fund? Which is better for you? Should you be buying cryptocurrencies? What about gold or real estate? All of these questions require expertise to answer, and even then answers will change depending on your specific situation and goals.
When you’re 25, it may make sense for you to make riskier investments that offer greater opportunity for serious growth. You’re young, after all, and if things go horribly you’ll have time to recover. When you’re 50, on the other hand, and the continent of retirement is visible on the horizon, you probably want to make more conservative investments to protect yourself against huge losses that would wash you back out to sea.
There are about a million factors other than age that might determine what the best investment decision is for your particular situation, and those factors will inevitably change as you progress through life.
Financial advisors know what all the options are and — if they do their job well — are familiar with your specific situation and goals. As your situation changes, they’re in the best position to be able to make informed decisions about the best path forward.
Peace of mind
Placing your assets in the hands of a trustworthy financial advisor is the economic equivalent of having Michael Jordan on your basketball team: you feel confident that, no matter what else happens, you’re probably going to come out ahead in the end.
Doing your own investing, on the other hand, is like having Michael Jordan on your baseball team: you’re going to be stressing out about the outcome of the game the whole time it’s going on (which, in this case, is most of your life).
The last thing anyone needs is more stress in their lives, and, according to the American Psychological Association, the top 3 stressors in modern life are money, work, and the economy. If you can relieve some of that stress by feeling secure that your financial future is in good hands, it’s probably worth whatever it might cost.
Caveats and pitfalls to avoid
First, the caveat: everything we’ve said about why you should hire a financial advisor in this article is dependent on you hiring a good one, and, unfortunately, not all advisors are deserving of your trust. Here are a couple of pitfalls to make sure you consider before placing your financial future in someone’s hands.
Check for expertise
While advisors must obtain various licenses in order to be able to sell certain financial products (for example, you must have a Series 6 license in order to sell mutual funds or annuities), the requirements for these licenses tend to be fairly low.
In fact, most licensures do not actually require you to have any sort of expertise in financial planning. Instead, the licensing exams focus on ensuring that advisors who obtain them know the laws and regulations they will need to work within as an advisor.
Just because you know the laws, however, that doesn’t necessarily mean you’re in a position to provide sound financial advice. (I certainly know all the rules of basketball, but you definitely don’t want me playing on your team.)
It’s always a good idea to have a conversation with a potential advisor to make sure they know what they’re talking about before you agree to give them the keys to your financial future.
Check their fee structure
Certain advisors work on commission. This means that they only get paid when they sell you certain products (like insurance policies or annuities). If you’re working with an advisor who gets paid on commission, it can be hard to trust the advice they give you, since they may be more motivated to earn money for themselves than they are to protect yours.
Advisors who earn a percentage of the value of the assets they manage, on the other hand, are financially motivated to earn you more money (since that means they’ll earn more money too). These advisors, as a result, do end up being a bit more expensive (because their fees grow with your assets), however if peace of mind is on the top of your priority list, it just might be worth it.
TLDR
- Generally, it’s worth it to hire a financial advisor assuming you’re sure you can trust them.
- Allowing a trustworthy advisor to manage your assets has several benefits:
- You’ll probably earn more money over the life of your investment than you would investing on your own.
- Good advisors make objective decisions about how to invest that will result in the best situation for you financially, rather than being influenced by feelings or personal bias.
- It takes a lot of time and effort to manage assets successfully, so hiring an advisor will inevitably save you time.
- Good advisors can help you capitalize on opportunities you may not even be aware of.
- Good advisors are experts in their fields, and so are best positioned to adapt your investment strategies to changing circumstances.
- Peace of mind comes with knowing your future is in good hands.
- Be careful, however: not all financial advisors deserve your trust.
- Be sure to speak with them before hiring them to ensure they are actually experts (since acquiring licensure does not necessarily mean they have financial knowledge).
Check their fee structure — advisors who work on commission may be motivated by their own financial gain rather than ensuring your assets are protected.