Why right now is a smart time to be using a financial advisor
Take a closer look at these below reasons and you’ll discover that financial advisors are more important now than you ever thought.
- Because you’re an emotional creature.
- They keep you on track with your investing plan.
- They do more than just invest your money.
- You don’t have the time.
- Even the professionals need help.
- Financial Advisors Keep Your Emotions in Check
Here’s the reality: When the stock market takes a huge drop – like it did with the financial crisis of 9/11, like it did with the 2008 banking crisis and just like it’s doing right now with a recent collapse in the oil price and spread of Covid-19 – your stomach will start churning. Why? Because you’ve got some skin in the game! You know that those drops in the market, mean a drop in your portfolio. You feel like your money is disappearing right before your eyes, and let’s be honest, nobody invests their hard-earned cash just to lose it!
Unfortunately, the “fight or flight” responses that often result from the occasional crisis are counterproductive to long-term financial planning.
If you don’t work with a financial advisor who can remind you that the market will go back up (because it always has), your emotions could take over your logic and cause you to make some stupid decisions like pulling out all your money and hiding it under a mattress.
A good investment advisor knows that market dips are like getting stocks on sale. They’ll strongly encourage you to leave your investments alone and even suggest you invest some additional surplus while you can get these stocks at a lower price.
Likewise, when a stock or new investing fad is soaring, an advisor will help you keep a balanced portfolio and not turn your retirement outlook into a pot of money you gamble with.
For most people, financial planning is an ongoing process rather than a point-in-time project. As an ongoing process, a long-term relationship with an advisor may be a superior solution than a transactional relationship that lacks a longer-term context.
Most successful advisory relationships involve adaptation through a multi-year and frequently multi-decade journey. As it takes time and trust to build a successful relationship with an advisor, it is best to set out on that journey with a clear head and emotions.
- Financial Advisors Keep Your Investment Planning on Track
How much money should you have saved for retirement at your current age? How can you make up for lost time if you started investing late? Should you change your investing portfolio as you get older? While answering these questions may seem like quantum physics for you, they’re like preschool maths for a financial advisor, because they know how to work the maths they can keep you on track when saving for retirement.
In fact, a recent study from UBS showed that 70% of those who work with a financial advisor are on track or ahead in saving for retirement, compared to just 33% of those who don’t use an advisor. Seventy percent is a whole lot better than 33%!
When planning for retirement, investing should be a marathon, not a sprint and it is important to focus on the long run. While inertia is not an investment strategy, sometimes patience can be. Even so, investment time horizons remain crucial because sequencing risk (where the timing of withdrawals) can have a negative impact on the overall rate of return that would have been available to the investor.
- Financial Advisors Do More Than Invest Your Money
Some people think that a financial advisor’s only job is to invest money. While that is one of their responsibilities, it is not the only one. They can also work with you on a wide range of other financial tasks:
Rebalancing your investments. Your portfolio is probably made up of different kinds of investments—mutual funds, bonds, cash and alternatives and those investments equal 100% of your money. For instance, you may have 50% of your money in mutual funds and the other 50% in bonds or cash. Over time as you get closer to retiring, you may want to change the percentages to protect your wealth. A financial advisor can give you advice on when and how to change those percentages.
Spending strategies. When you retire, which of your investments will require a minimum withdrawal every year? Which income stream should you tap first? Questions like these are critical when you start using the money you’ve been saving. A financial advisor can help you make the best decisions in this area.
Tax planning. Do you know what tax laws apply to your financial situation? Or which investment will be taxed the most? A financial advisor will know the answers to those questions. They know which of your assets will have the most impact on your taxes, when those taxes are due, and how much will be owed. Advisors help you stay on good terms with your relevant tax authorities.
Estate planning. As you build wealth, one of your tasks is to decide where that money would go if something bad should happen to you. Your financial advisor can work with an estate attorney to make sure your assets are distributed according to your instructions, not based on some random probate court.
Long-term care planning. One of the biggest expenses you may incur in retirement is long-term care. If you require urgent medical care or if you stay in a rehab hospital while you recover from recent surgery, you could burn through your retirement fund more quickly than you realise. A financial advisor can help you make the best decisions in this area of planning.
- Financial Advisors Save You Time and Stress
Think about your typical workday. You’re crazy busy from the time you wake up until you hit the pillow at night, aren’t you? Let’s ask ourselves an honest question: Do you really think you can put in the hours of research it takes to choose the right mutual funds or find the right balance of those funds?
Fidelity Asset Management surveyed some of its newest clients, and 77% of them admitted that they didn’t have the time or knowledge to be confident in their investment choices. My guess is they’re not alone. And even if I had the time, I would much rather spend it with my family. An afternoon having fun at the pool with my daughter, beats pouring over thousands of numbers every time.
Professional advisors are elbow-deep in investing all day, every day. While you might spend hours looking up definitions, figuring out acronyms, and trying to decipher reports, these people won’t. They know their stuff. They can find the answers in half the time because it’s the world they live in. They can save you countless hours that you just can’t get back—time you’d rather spend elsewhere.
Most people find ways to delay getting started on financial planning. Just as it is easy to put off going to the dentist or doctor, many people wait until a crisis before going to see a financial advisor.
Let’s face it. We hate spending money on things we think we can do ourselves. Maybe you feel that way about investing. Why should you pay a financial advisor when you could manage your money yourself?
There is a lot of second-hand information floating around about financial advisors. People tend to cringe at the fees, or think they’ll be cutting a cheque at the very first meeting. So, when it comes to investing, some people say, “I can handle it all on my own.” But let me ask you this: Do you fix your own air conditioner? Service your own car? Fly your own plane…?
You use a professional simply because they have more education and experience on their subject matter. You know they’ll do the job right and that ultimately gives you peace of mind. The same applies with your finances, you need a professional in your corner.
That being said, not all advisors or advisory companies are equal and doing your research on them is always a wise move. Look for signs of transparency and check the online reviews from existing clients.
- Even Advisors Need Help
Doctors don’t perform surgery on themselves. Dentists don’t pull their own teeth. Experts in any given field get consultation and advice from others they respect. This happens to be true in the world of financial planning too.
That’s because everybody has “blind spots”. When you’re driving, there’s that one spot in your car that blocks your line of sight. Often there’s a hidden danger that can cause accidents if you change lanes too quickly. You have similar “blind spots” in managing your wealth too. For some, it’s emotions and for others it may be misinformation. Those “blind spots” can cause damage to your financial planning. That’s why you need a financial advisor.
A professional can give you a 360-degree, bird’s-eye view of your financial situation because they’re on the outside looking in. They can spot weak areas you may be blind to and give you real-time and valuable advice on how to fix them. They can keep a cool head when you’re panicking, and they can give you educated advice on making wise money moves. Even the best of the best requires expert help. Believe it or not so do you!