SUMMARY: Today, there is financial advice readily available on dozens of sites, blogs and tools. Is a real-world, human advisor still worth it for the modern investor?
With financial advice readily available from every major news outlet and a whole host of specialized sites, blogs and tools, is a real-world, human advisor still worth it for the modern investor? Or have algorithms and apps made the profession as outdated as the milkman?
Most experts in the field point out that, despite widespread availability of financial knowledge, the majority of Americans don’t know what to do with their money in order to effectively plan for the future. Clearly, some expertise is still needed. Not to mention the fact that, over time, an advisor can bring an additional 1.5-4 percent in value to your portfolio.
What, then, makes an advisor worth the fee?
They get your money in fighting shape
An advisor can take a 30,000-foot view of your finances and integrate all the dollars and cents of your income, assets, expenses and liabilities into a clear vision for the future. They can also walk through the basics of investments, savings, taxes, estate planning and insurance.
Your advisor can provide advice on next-level topics that may seem like gibberish to the casual investor but can yield significant returns over time. Investment vehicles like annuities, REITs, or HSAs all have their place in a balanced portfolio, but require some in-depth knowledge in order to navigate them successfully.
They keep your eyes on retirement
Above all, your advisor can serve as a (gently) nagging reminder that retirement needs to be your top financial priority. Of course, you have other obligations—college savings, debt repayment, healthcare, the occasional vacation—but your retirement strategy will determine how you live in your later years.
And it can require some tough conversations. Where do you want to live in your 80s? How long do you expect to live? How healthy are you now? The answers to these questions, on some level, all involve frank discussions about money. Bring a spouse or life partner into the picture, and things can be even more complex. An advisor can be a mediator that helps everyone keep perspective.
They give (good) tax advice
Of all the financial worries that keep you up at night, taxes may be the worst. Not only do they take money out of your pocket, but they are also notoriously complex to navigate. On this issue alone, an advisor can be worth his or her weight in gold.
There are many ways to defer or avoid taxes when saving for priorities like retirement—trusts, 401(k)s, IRAs, the Roth versions of each—and your advisor will be able to weigh how best to use them to maximize returns and minimize taxes and fees.
They help you roll with life’s surprises
It doesn’t matter if you’ve been investing since college or only since you turned 50: An advisor can create a plan that encompasses more than just retirement and anticipates changes in direction, both positive and negative.
Some of your most momentous milestones—including marriage, children, a new car or a new home—also come with momentous price tags. What if home improvement costs skyrocket? How do you balance child-care costs with potential salary disruptions? What about saving for college?
They teach the discipline to see it all through
A financial advisor’s main job is to help you craft (and stick to) a plan. And this sounds easy, but the ups and downs of the market, not to mention in your own life, can make it difficult to stay the course. An advisor keeps you focused on long-term goals, rather than reacting to the crisis of the moment in a way that hurts returns over time.
In order for this relationship to run smoothly, you need to meet regularly with your advisor so that he or she knows you, your family, your goals and your taste for risk. Every bad market turns good, and every good market eventually falls. But the cycle will come around again and it’s helpful to have an expert in your corner to back you up when things get serious.
They’re worth every penny
Of course, it’s possible to do all of this yourself. There are dozens if not hundreds of blogs that offer all manner of useful advice. But wouldn’t you rather spend your time making money, rather than managing it?
Exactly how much money will you need, anyway? Answers await with our retirement calculator.