If you read a lot of blogs, you’ll hear many people claim that financial advisors are a waste of money and that you can invest yourself. Why pay someone to do something that you can do yourself? Unfortunately, this argument isn’t so cut and dry.
There are many people that know how to do certain things but choose not to and pay someone else for it. For example, cleaning their house. I’m sure if you hire someone to clean your house, it isn’t because you don’t know how to dust or run a vacuum.
It most likely is because you feel that it is worth it to you to pay someone and use the time you save doing something else. It’s all about opportunity cost.
When it comes to investing, most people could do it themselves. Using a service like Wealthsimple allows you to invest without being too hands on. In fact, I recommend them for this very fact. You get everything an advisor gives you at a fraction of the cost.
But investing is an emotional roller coaster and having someone there to lean on can go a long way towards helping you to reach your goals. Thus, many investors opt for hiring a financial advisor.
Let’s take a look at when it makes sense to hire a financial advisor.
Do You Need To Hire A Financial Advisor?
So do you need to hire an advisor? If you are just starting out, I suggest you read a few books that lay the basics out for you. The reading will take an hour or so and you’ll be able to have a good foundation. You can find some of the books I recommend you read in my resources section. I also list the best finance books in this post.
When things start to get complicated like marriage, kids, retirement planning, college planning, etc., this is when you might want to look more deeply into hiring a financial planner. But some people may be better off hiring an advisor from the start.
Why? Because a good advisor will help you to take your emotions out of investing. Your greatest enemy when it comes to investing is yourself. Many investors get caught up in the headlines and buy and sell at exactly the wrong time.
A good advisor will help you to avoid doing this. When you call them up to say you want to buy or sell, they will ask you why and will walk you through the moment.
They will read over your financial plan with you and help you to see that you are most likely acting emotionally and should continue to do what you have been doing.
Look At The Overall Benefit
The main argument against hiring a financial advisor that I hear is the cost. But this is shortsighted. For example, I’ll tell you the story of a former client we had at a planning firm I worked for.
One day he came in for his quarterly review. During this meeting he told us how he looked back over the past 10 years and how he has paid us close to $10,000 in management fees. The next thing he said though is probably going to take you by surprise.
He said it was the best money he ever spent. He knew if he were trying to invest on his own, when the market tanked in 2007, he would have sold out and probably never would have reentered the market.
The point is, don’t just look at the cost of hiring a financial advisor. Look at all of the benefits. This includes a higher overall return by staying invested in the market and a greater chance of reaching your financial goals.
If you find yourself buying and selling all of the time and not really making any money in the market, I suggest you first read up on investing. You may learn some things that will help you get a handle on your emotions.
From there, if you don’t feel comfortable investing yourself, then you may want to look into hiring an advisor to help you out. And if you do go this route, be sure you read through my post of what to look for in an advisor to ensure you hire the best one to fit your needs.
Hi, my name is Jon and I run Penny Thots. I’ve been interested in personal finance since high school and love writing and talking about it. You can learn more about me in the Authors section of this site.