[vc_row][vc_column][vc_empty_space height=”50px”][vc_column_text]

What is the true value of a financial advisor?

[/vc_column_text][vc_single_image image=”7930″ img_size=”full”][vc_column_text]Before you found this website you probably asked yourself, “are financial advisors worth it?”. What spurred this particular question? Do you no longer feel like you have the knowledge to manage your personal finances? Are you concerned that you aren’t saving enough for retirement or your children’s college costs? Are you worried that you haven’t protected the financial security of your loved ones?

These concerns, along with many more, are the reasons why people answer yes to the question “should I get a financial advisor?”. But questions like these sometimes keeps them from taking the next step:

  • What is the true value of a great financial advisor?
  • What can they do for me that I can’t do myself?
  • Are financial advisors worth the money I’m paying for their services?

These are important questions and should be answered by considering the risks involved in not having the expertise to make the right financial decisions on your own. [/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_empty_space][vc_column_text]

Savings risks

Throughout your life, you’ll be saving money for various life-stage goals. When you’re just starting out, you’ll probably save for retirement through your 401(k) plan. But you might also be thinking about saving some money to buy a new car or your first home. And if you start a family you’ll want to add saving for college to your list.

At any time you may have multiple savings goals competing for your limited savings budget. How do you decide how much to put away for each goal? [/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_empty_space][vc_column_text]

Investment risks

Money in your savings account is unlikely to keep up with inflation, so forget about your savings growing fast enough to become your retirement nest egg or college savings fund. You need to invest the money you save in a mix of asset classes such as stocks and bonds (or ETFs and mutual funds that invest in these securities) that have a higher return profile than a savings account to accomplish those long term goals.

But it’s a bad idea to invest all of your money as if it all had the same time horizon and tax treatment. The money you save for a particular goal should be invested in a way that reduces the tax bill and increases the likelihood of reaching that goal, whilst keeping the risk of the investment relative to the time horizon of your goal. For example, if you want to fund four years of college at $100,000 per year and have 18 years to save for it, your investment strategy may be more aggressive than if you were saving to buy a house three years from now. Another example is that to reduce your annual tax bill, you would want to hold more of your interest income-generating assets, like bonds, in tax-deferred accounts as opposed to taxable accounts i.e. choose a 401k or an IRA over a regular brokerage account.

The longer the time horizon or the greater the goal, the more you’ll probably need to invest in stocks to take advantage of the long-term higher returns they offer compared to bonds or cash. But as you approach retirement, you might want to shift more of your money to bonds to protect against losses from the inevitable short term rough patches in the stock market. But what if your investments still haven’t generated enough money to support the retirement lifestyle you want? Should you remain invested in stocks or increase the amount you save (which might take money away from other goals) or a combination of both? All of these questions can be tough to address on your own.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_empty_space][vc_column_text]

Debt risks

You’ll probably take on a fair amount of debt during your lifetime. Over time you’ll juggle payments for car loans, student loans, mortgage payments, and home equity loans. These payments will be competing with everyday expenses and savings goals. The question of paying off debt versus investing is an important one as they are constantly competing for your cash flows.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_empty_space][vc_column_text]

Unexpected risks

Once you’re married and starting a family you’ll want to get life insurance to provide financial security in the event of your death. But what kind of insurance (term, whole life or a combination of both) makes sense for you? And what level of coverage should you get? More than one in four of today’s 20-year-olds can be expected to be out of work for at least a year because of a disabling condition before they reach 64, yet more likely than not you don’t even know if you currently have coverage. An additional issue when trying to buy insurance is that insurance brokers do not have their incentives aligned with yours as they get paid based on commissions from the products they recommend – so how can you trust their recommendations? The process can be fairly overwhelming.

If you own a car or home, you’ll probably need to get insurance. But too often people get the minimum level of coverage to keep premium costs down. This may be fine if you never need to make a claim, but what if something catastrophic happens, such as someone sues you for injuries suffered during a car accident or slipping on the ice on your front steps? Do you have enough liability coverage to pay potentially hundreds of thousands of dollars in claims?[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_empty_space][vc_single_image image=”7931″ img_size=”full”][vc_column_text]

Managing risk, providing direction and peace of mind

These are just a few of the situations where the value of a financial advisor proves itself. They will look at your entire financial picture − current cash flows, debt, savings goals, insurance needs − and offer a holistic financial plan to help you address all of these aspects. And most financial advisors also manage investments on your behalf, meaning that they can optimize them for taxes and fees, as well as reduce the time you have to spend on these tasks.

Of course, these services don’t come free. For a standalone financial plan, you can pay anywhere from a few hundred to a few thousand dollars, depending on its complexity. In addition, not all financial advisors are created equal so don’t look at price as the only variable. Make sure that you understand the differences before hiring one. And if you hire a fee-only advisor to manage your investments, in most cases you’ll pay them an annual percentage of the asset they manage, generally starting at 1%.

It’s up to you to determine whether the expertise and peace of mind a financial advisor offers is worth the cost. But when you’re thinking “should I get a financial advisor?” think about the potential costs of making ill-informed financial decisions on your own. Chances are, your answer will be, “I need to find a financial advisor today.” [/vc_column_text][vc_empty_space][/vc_column][/vc_row]