It’s never too early to start thinking about investing – whether retirement is years or decades away. The sooner you start, the more time you have to enjoy the power of compounding.
However, deciding whether you should self-manage your investments or get a financial advisor is a big decision.
Retail investors now have access to the same free financial data professionals use. As a result, more and more people are dipping their toes into DIY investing.
But just because it’s possible, is it a wise move to take a hands-on approach to investing? Or should you enlist the help of a professional?
These are challenging questions that require honest self-evaluation to answer.
While not everyone needs an ongoing relationship with a financial advisor, many investors who would benefit from seeking professional advice mistakenly think they don’t need it.
This article explores some key questions to ask yourself before deciding to manage your own investments.
Before we dive right into the questions, let’s take a closer look at the two options:
- Managing Your Own Investments
Thanks to the unrestricted access to financial information, real-time news and detailed security statistics, the informational playing field between Wall Street and Main Street has been leveled.
Pros: While it’s potentially a lot more work, this move will help you learn about finance, save you on investment fees and give you the freedom to make your own financial decisions. It can be gratifying if you’re successful.
Cons: The most obvious downside to managing your own investments is that you may not allocate your portfolio inappropriately. When your portfolio is not prepared for market fluctuations, your investments suffer. You can also make costly mistakes of making poor investment decisions, missing tax savings and paying hidden fees elsewhere.
- Hiring a Financial Advisor
Sometimes, you need financial help that goes beyond reading financial books and blogs.
Financial advisors provide financial advice to their clients either at a flat fee or a percentage of assets they manage. A financial advisor can serve as a counselor, coach and sometimes even a concierge.
Pros: A financial advisor will help you navigate complex financial situations, give expert portfolio management, and answer any financial questions you may have.
Cons: Financial advisors charge varying fees, and while most are skilled and ethical at what they do, there’s always the risk of hiring a substandard financial advisor.
DIY Investing vs. Hiring a Financial Advisor: Here’s How to Decide
Successful investing requires a time commitment, the right temperament and adequate financial knowledge.
Here are a few questions to guide you in determining which option is best for you.
- How Much Money Do You Have to Invest?
More money, more problems. This statement couldn’t be truer with investing.
With more wealth comes additional investment options and complexity, and a bigger need for some sort of professional assistance.
If you’re a fledgling entrepreneur with little money to invest, you probably wouldn’t want to allocate a percentage to fees or spread your money across multiple assets.
- How Complicated Are Your Finances?
If you’re young, single and just on the lookout for simple investment advice for your 401k or brokerage, you probably don’t need a financial advisor.
But if you’re dealing with more complex matters such as retirement distribution strategies, margin trading or inherited stock, you may be making a mistake by managing your own investments.
This also applies if you expect your situation to get more complicated with illness, divorce or the birth of a child – you’d probably be better-suited seeking professional help.
- Do You Have the Time?
Investing is a long-term process.
It requires a time commitment during every part of the investment cycle, not just at the beginning of the process. When building an initial portfolio, you must first assess your risk tolerance in the context of your financial goals to determine the optimal asset allocations.
The next steps will involve:
- Identifying potential investments within those asset categories.
- Conducting due diligence to make sure they meet the criteria.
- Purchasing the investments in one or more brokerage accounts.
- Committing to maintaining your portfolio regularly.
If you have spare time throughout your workweek, tending to these one-time and ongoing needs is possible.
If, however, you’re a busy executive with little to no room in your schedule and could be spending the time doing more fulfilling and enriching things, you’re better off hiring a financial advisor.
- What’s Your Level of Interest and Sophistication?
Having the time to manage your investment portfolio only matters if you have the desire to do it.
To be your own manager, you need to have a basic understanding of finances and the market. It’s also vital that you enjoy it as you will have to spend much time on your portfolio.
Are you comfortable with numbers? Do you know how to execute present value or future value calculations? Can you accurately and reliably track the actual performance of your overall investment portfolio?
If you’re already great at managing your day-to-day finances, you can manage your investments too.
But if just reading terms like ‘ETFs’ and ‘CDSC’ make you want to scratch your eyeballs out, consider hiring a financial advisor.
Don’t let the wealth of information available online give you a false sense of security. Tools are only as good as the knowledge and experience of the person using them.
- Are You Emotionally Vulnerable to Market Price Changes?
The time and cost savings can entice many new investors, but before you jump into self-management, how vulnerable are you to changes in market prices?
Checking your portfolio and tracking your progress when your investments are performing well is fun. But it’s an entirely different story during temporary declines or extended periods of little to no return.
Investing is a wild ride. This is where the rubber meets the road and needs you to be totally honest with yourself. Your investments may be flying high one minute and in the next be in the doldrums.
When the stock market is volatile, can you sit, watch and do nothing? Or will you be tempted to sell, which can lead to missing out on huge market rebounds?
Investment decisions should be based on rational analysis rather than emotional reactions to changes in market prices.
Being emotionally detached from your investments is crucial if you’re to make intelligent financial decisions. Investing requires you to conduct yourself in a way that’s contrary to your emotional impulses. That’s hard to do when you’re working with your own money.
As Warren Buffet once put it, “Success in investing does not correlate with IQ. What is needed is the temperament to control the urges that get other investors into trouble.”
If you can’t keep your emotions in check, maybe you should hire a financial advisor.
Why It’s Important To Have A Financial Professional Helping You Manage Your Assets
Several studies have in the past shown the track record for individual investors is not encouraging.
Just because you understand the basics of investing and the fees are low does not mean you’ll come out on top with the DIY approach. Your investments deserve more than thoughts and prayers.
While we may have the flexibility to unwind many of our decisions, you cannot always rely on a take-back, specifically if it has to do with significant financial decisions. You’ll need the objectivity, tools and experience a professional brings to make the right decision the first time. Chances are you might not get another opportunity.
At WealthCare Financial, we will assess your assets, debts and goals (both short-term and long-term), then work closely with you to create a comprehensive financial plan.
In addition to managing your investments, we provide comprehensive financial advice on areas like retirement planning, tax strategy, cash-flow management, wealth management and estate planning.
If you have a question, want some more info or would just like to speak to a professional, send us an email or call our office at (561) 705-2005, and someone will be in touch with you as soon as possible.
The information provided is for educational purposes only and is not intended as investment advice for anyone. All information discussed is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The views presented today are those of WealthCare Financial and do not necessarily represent the views of AlphaStar Capital Management, LLC. The opinions expressed are subject to change without notice and do not constitute financial, legal or tax advice. Please consult your financial professional before executing any financial strategy. Investment Advisory and financial planning services are offered through AlphaStar Capital Management, LLC, an SEC registered investment adviser. AlphaStar and WealthCare Financial are independent entities