Don’t Use a Financial Planner
Many investors believe that, in order to create a healthy portfolio, that they need a financial planner to help them. This is not the case. At least not usually. Here is a brief explanation of what financial planners do and some recommendations on whether or not you should consult one.
First of all, financial planners and financial advisors do have a good understanding of how to invest your money. They have access to financial planning software and a the ability to use it well. With that said, financial planners are victims of the companies they work for, and each financial planning company will offer quite different advice. While one planner will insist that you invest 50/50 in bonds and stocks, another will tell you to buy 90/10 stocks/bonds. There is just not a single standard that applies to your investment and retirement savings.
Furthermore, financial planners are not necessarily good investors. For example, I used to walk past a few financial planners offices each day. They would post a list of recommended stocks in their window each day. I noticed that the stocks were pretty much all Dow stocks, with very little thought going into the recommendation. As a stock would fall out of favor, their lists would change to show the more popular stocks. While this isn’t true for all planners, let’s face it, they aren’t stock pickers. They are trying to sell you their services by mentioning popular stocks that make you feel comfortable. And if you feel comfortable with their recommendations, maybe you’ll pay them to help you invest?
The final point on financial advisors is that they are expensive. After all, they are in the business of getting paid for their advice. They make money by charging you fees. They often charge you a few percent of your portfolio for their help. Some charge an hourly rate, this is preferred because you only pay for the help you get. They also charge for each trade. And, they often get paid by the mutual fund companies for getting you to buy particular mutual funds that have loads or selling fees. On top of that, you’re paying the expenses for any mutual funds you are buying. Add the fees up and they can come to as much as 3-5% per year. This is a direct expense against your investment returns. Instead of earning a market average return of 10%, you’d only be earning 5-7% after fees and expenses.
Now, here’s why we recommend that you don’t use a financial planner.
We believe, with a little research, that you can decide how to invest your portfolio and easily pick a diversified portfolio of mutual funds, stocks and bonds. The fact that you’re here reading this is testament to your ability to find information on your own. Keep reading and find lots of opinions and advice about how you should invest. Find what feels right for you and do it yourself!
If you just can’t stomach, or really don’t understand how to invest, it’s okay to meet with a financial advisor for help. If you’re going to find one, ask around for recommendations. We’d recommend you find a planner that will help you make decisions but not make them for you. Pay them for their time and they will be less expensive. Do as much as you can on your own.
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