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March 12, 2020  |  Smart Wealth Tips

Hiring a Financial Advisor

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Most people do not see the doctor until they are sick, and some people feel they do not need a financial advisor until the market goes down. It is true that there are countless tools and resources out there to be a DIY or self-directed investor. You could also buy a stethoscope and read WebMD, but that doesn’t seem like a good idea if you have a serious medical concern.

All of the things an advisor does for clients

We all grew up going to the doctor throughout our childhood, which helped remove the major concerns about medical professionals. For a lot of people, they might not have visited a financial advisor with their parents growing up. Therefore, when you get to the point of earning money, saving money and eventually looking for assistance there is a lot more hesitancy due to the lack of familiarity. In addition to the uncertainty, it does not help that there are so many myths about working with a financial advisor, the top 5 common myths I hear about working with a financial advisor:

Top 5 Myths About Financial Advisors

1. I can’t afford a financial advisor

Reality is you can’t afford to be without one. An advisor helps manage your finances, including student loans, credit cards, retirement savings or real estate investments.

2. Hidden fees.

Ask for complete details on all-in fees for each consultation or transaction. This is your money, your future — don’t be shy about it. Choose wisely and ask questions about the forms of payment.

3. You could do it yourself cheaper. 

Everyone at some point needs professional help. There’s more to financial planning than making a deposit. It’s about knowing how to manage the funds for growth.

4. You got the advisor – now you can kick back.

Wrong. The key to building a secure future includes budgeting and learning. It involves using money tools like insurance policies, and estate planning. 

5. 401k contributions are enough.

Without financial planning, social security and 401(k) balances may not keep up with the cost of living.

In Comparison…

I always like to relate this to fitness, I could buy p90X and workout in my living room, or I can go outside and use mother nature, both of which are cost effective or free, but what are the odds of me actually sticking to a fitness routine? Every time I wanted to make serious strides in fitness, I always needed a coach. Whether that was group fitness with CrossFit or a one on one coach, both structures provided accountability, motivation and always ended with better results.

So, when looking at investing and the consideration of hiring a financial advisor, think of it as what is an advisor going to REALLY provide that an you cannot provide for themselves? A financial advisor can help you avoid the many pitfalls of DIY investing.

Common Pitfalls Of DIY Investing

1. Removing the Urge to Trade on Emotions

You’ve probably become more than a little emotional when you think about your money. And when it comes to investing, listening to these emotions more often than not can end disastrously. It takes a particular type of person to be able to put aside feelings and make the right decision every time. A financial advisor is free of any emotional attachments and is able to choose whatever action is best for your wallet. Warren Buffett’s famous quote, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” is a lot easier said than done to live by. For most investors, the common belief is that whatever the current trend is, that it will last forever. So, when stocks are going up, they will keep going up and when they are going down, they will keep doing so.

2. Failing to Employ a Disciplined Process

Hunches and tips rarely work out in the long run, rather, choosing and sticking to a proven investment strategy does. Your financial advisor has years of investment experience to use as a guide and will never risk your money over a gut feeling or a rumor. 

3. Avoiding Rebalancing a Portfolio

Selling a well-performing asset to buy another financial instrument which is underperforming is crazy, right? Well, not if you know what you are doing. Most DIY investors are reluctant to make such seemingly counter-productive moves, but the pros know when it makes sense to take the risk.

4. Putting All Your Eggs in One Basket

The old adage,” Only invest in what you know,” is good advice, but if you don’t have experience with several types of financial assets, your portfolio probably isn’t diverse enough to offer you very much stability. A good financial advisor will make sure that your investment strategy is well diversified to minimize down markets. 

5. Selling When the Market Gets Scary

The market is down for the second week in a row, and the value of your portfolio is dropping like a stone. Are you going to have the guts to stick to with your investment system? Most DIY investors don’t and as a result, wind up not only selling their investments for a loss but missing out on the very lucrative rebound. Financial advisors don’t get scared by adverse market conditions, so, their clients are in the market to take advantage of the rebound.

6. Trying to Call Tops and Bottoms

You have heard it a thousand times, “Buy low, sell high,” but attempting to call the tops and bottoms of a volatile market can cause you to lose out on a lot of profit. A professional investor knows that being afraid to pull the trigger on a trade because the fear of getting every cent from a trade is silly as long as you can catch the majority of the trend. 

7. Sleepless Nights

Investing on your own is stressful and stress can have many negative impacts on your health. If the market is up, you are worried whether you should ride the wave as long as possible or take your profit now. But if the market is down, it is even worse, you are terrified your investments will never recover. Why do that to yourself? Do your due diligence, hire the best financial advisor you can, and rest easy. Instead of looking at “how much a financial advisor costs”, try thinking, “how much am I willing to pay to not deal with this stress”.  

These pitfalls can impact investors thinking about retiring, or currently retired in many ways. Check out our free financial guide Top 10 Retirement Considerations for a more in depth analysis.

Is A Financial Advisor Worth The Cost?

The value of financial advisors is shown in a 2018 Charles Schwab study of self-directed brokerage accounts in retirement plans. “Retirement savers who use an advisor to help them with their self-directed accounts have higher balances, a more diversified asset allocation mix and less exposure to individual stocks compared to non-advised participants”, the report says.

Vanguard published a study a few years ago discussing this very topic. The found that an advisor adds “about 3%” to the returns of a typical client. If you’re paying 1%, and getting 3%, seems like you’re coming out ahead.

Where does that 3% figure come from? Vanguards says three places:

  • Portfolio construction (0-1.15%/year)
  • Behavioral coaching (1.5%+/year)
  • Wealth management (0-1.45%/year)

If in fact you decide that you are going to work with an advisor, the one thing we suggest is to make sure they are a Fiduciary. To learn more about what a Fiduciary is and why it is important to work with a Fiduciary, check out our Free Financial Guide: The Importance of a Fiduciary.

Final Thoughts

Any time I speak to a self-directed investor, I ask them one question… “Do you like doing it?”, if the answer is yes, then I know they are the type of investor that will put in the time it takes to build and manage a proper portfolio. There are many services that we all pay for that someone would think isn’t worth it. The person who likes to work on cars and change their own oil probably wouldn’t accept a coupon for a $5 oil change.

It’s the people who do not have the passion about investing that will end up not spending the appropriate time on their portfolio who should work with a financial advisor.

Amidst all of the angst and volatility in this Bear Market and possible Recession, we are offering a free portfolio analysis and financial plan, schedule a 30 minute virtual consultation by clicking the link below.

Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC.- Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. –  Advisory services offered through Sanctuary Advisors, LLC., an SEC Registered Investment Advisor. – Theorem Wealth Management is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC. This communication has not been reviewed for completeness or accuracy, does not necessarily reflect the views of Sanctuary Securities, Inc. or Sanctuary Advisors, LLC., and is not a recommendation or endorsement of any product, service, or issuer. Third party posts do not reflect the views of Theorem Wealth Management or Sanctuary Securities, Inc. or Sanctuary Advisors, LLC., and have not been reviewed for completeness and accuracy. All further communications from this representative must be sent from and received by [email protected] . For additional information, please refer to one of the following consumer websites: www.finra.org, www.sipc.org

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