Lately, I’ve met with several prospective clients who are love taking the DIY route when it comes to their portfolios. For many different reasons they are amongst a group that believes you can be your own financial advisor… no need for professional help. However, in our meetings, with each one, we found areas where professional advice may have been more beneficial. These prospects were not your “Average Joes”. These extremely intelligent individuals occupied such vocations as nuclear engineers, Ph.D.s, etc.
As with many that choose the be your own financial advisor route, a common thread I found amongst them, aside from their intelligence was they all subscribe to the Bogle Theory. This concept, developed by Jack Bogle from Vanguard Group, recommends buying index funds and holding them. Basically, you just leave them alone and don’t worry about them.
While these prospective clients managed to perform well using this theory, their main reason for coming to meet with me was to see if they are on track to reach their ultimate goals. Basically, they wanted to know if it really is possible to be your own financial advisor. Could they really make their retirement dreams come true? So we looked at their current investment strategies and found several areas they could improve on, but it was still hard for them to accept.
At first, they argued advisor fees are too expensive. Here’s the truth, though: fees range anywhere from 0.5% to 2%. However, most are typically between 1% and 1.5%. Many investors who choose to hire advisors feel the fee is worth it. They maintain the customized professional guidance they receive is unparalleled and the better returns make up for the fees.
I get it, relinquishing control of your money isn’t easy. Money has an emotional component. However, that’s another reason it is vital to allow someone else to take charge sometimes. I even let someone else manage my money! Why? Because when you think you can be your own financial advisor, all goes well until the market takes a nose dive. Then we want to “fix” our portfolio. Instead of ending up with a well-rounded diversified mix, we tend to go either too conservative or too aggressive. To save us from making emotional mistakes, the fee alone becomes worth it.
That’s not to say you can’t do it yourself. Obviously, there are those who are quite capable of achieving favorable outcomes when they go the DIY route. If you’re just getting started, you may want to be your own financial advisor. There are several online financial resources that can guide you as you get started. Those who live simple lives typically can do great for themselves. So if you aren’t a business owner, have very little debt, and retirement is not in the very near future, the benefits of DIY investing may serve you better than an advisor could.
The key to DIY success — knowledge. Those investors that take the time to learn all they can about what they are investing in, tend to be successful. More times than not, they don’t religiously follow stock market reports or allow the latest news cycle to influence their investing decisions. Emotional investing is never a good idea. If you’re one of those people who want to dive in and soak up all you can about investing, retirement, insurance, general finances, etc., then the chances being able to be your own financial advisor will undoubtedly skyrocket. However, thoroughly learning all of those subjects just to effectively manage your only your own portfolio may prove to be a daunting task. Just like some people triumph when it comes to losing weight alone, there are those that will succeed in investing alone. But those results, are not typical.
One of the top avenues DIY investors are turning to is robo-advisors, an algorithm-based approach to portfolio management. These can be great for DIY investors. But robo-advisors are just robots — they can’t see your finances in the context of your life.
In fact, there probably isn’t another area of our lives, outside of money, that we take such a proactive, hands-on approach. For instance, when it comes to our autos, we’ll gladly pull into a mechanic shop to properly maintain the car. We quickly pull out our wallets and pay whatever it costs. Why? Because we trust the experts; after all, they know what they’re doing. They work on cars daily. Yet we don’t want to let anyone help us maintain a proper balance when it comes to our finances.
Hiring a professional — one with good transparency — can have holistic benefits, meaning they work on more than just your portfolio alone. Professionals can often find ways to minimize your taxes. They work to keep you on track to reach your long-term goals. A good advisor/wealth manager in a fiduciary role is entirely focused on helping you make your dreams a reality. So really the fee you pay an advisor is likely worth the money you’ll spend. That’s why many wealthy people choose to hire outside help. They aren’t focusing on the fee; they’re looking at the gains a professional can help them attain.
If you’re one of those people who can leave your money alone and let it grow, then you may be great at DIY investing. However, most Americans need coaching to obtain the right balance. Instead of facing the burden of reaching your monetary goals alone, hiring a professional, much like a hiring a personal trainer, may be able to get you on the path to a healthier and wealthier life.
Whether you feel you can be your own financial advisor or you choose to work with a professional, getting serious about your financial future is the real key to achieving optimal results and reaching your financial goals.