A financial advisor’s job is to help you make smart investment decisions. As in any career, there are some excellent financial advisors and some not-so-great ones out there.
But before you spend a lot of time trying to find a superstar financial advisor, it’s a good idea to stop and consider whether you truly need one. Maybe you are thinking about getting rid of your current advisor and going it alone. After all, tons of people have effectively managed their own finances without the help of an investment professional.
Here are a few questions that can help you quickly decide whether or not you need a financial advisor:
Do you have a lot of money to invest?
Wealthy people have financial advisors for several good reasons. Financial advisors can suggest ways to save money on your investment commissions, help save you money on your taxes, and get you access to exclusive investments. To the average person just putting 10% into their 401K, those things probably don’t matter that much.
If you just hit the powerball, by all means – you should speak to a financial advisor. But if you’ve got lower than $100,000 to invest, you most likely won't have much need for one ($100,000 is usually the threshold for sales charge discounts). When you are investing only a small amount of money, you can end up paying needless fees and sales charges without getting much in the way of good advice.
Are you bad at managing your own finances?
Some investors have a tendency to freak out, panic, and throw out a perfectly good investment plan the moment they hear something bad in the news. That’s an easy way to generate losses. The best financial advisors can keep you from making an overly-emotional decision about your finances, and it’s one critical reason why people choose to hire them.
If you’re the type of person that is familiar with filing your own tax return, balancing your checkbook, and sticking to a monthly budget, you probably don’t need a financial advisor. If you feel consumed with stress about your finances, struggle with saving money, or simply prefer others to handle your paperwork for you, then you may want to consider using one.
Are you comfortable speaking to salespeople?
In reality, most financial advisors are simply salespeople with knowledge in finance. Some of them have very little financial experience, but almost all of them are trained to sell you a financial product. That’s not an issue for people who know what they are looking for and are assertive enough to voice their concerns or decline a sales pitch.
If you usually avoid salespeople or hate being asked, “Is there anything I can help you with?,” however, you may feel awkward when you sit down to meet with an advisor.
Do you have hardly any free time?
When they aren’t playing golf, your advisor will usually spend some of their time monitoring your portfolio. That can be a huge advantage for an investor with a healthy income and very little free time of their own. Here’s the rule: if you believe that you earn more money than your financial advisor, it’s likely worth it to retain them–as long as you get good service.
For the household that earns an average of $50,000 per year, why not spend one Saturday morning a month working on your financial plan? When you have the time to monitor and consider investments and make regular changes to your investment strategy on your own (that means you, seniors!), you are less likely to need a financial advisor.
The final decision
If you answered “yes” to most of these questions–or you are a paranoid, rich investor with a poor track record–then you should absolutely look for a personal financial advisor. You can thank me later. But if not, if most of your responses were “no,” then you should be all right investing on your own.
The truth is, most people simply don’t need a financial advisor. They just need a little help in learning how to make the right investment decisions for themselves.
If you'd like to learn more about how to invest on your own without the help of a financial advisor, visit my website at www.great-mutual-funds.com [http://www.great-mutual-funds.com].