Should you manage your finances all by yourself, or engage a professional’s service

Scenario 1: Lauren retired from her hospital position after 3 decades of service.  She is the bread winner of the household.  She has about less than a half million of retirement money saved up to last her and her husband the rest of their lives.  Conservative in nature, she wants some “safe investments”.

Scenario 2: Michael and Mary always lost money on anything they invested in – real estate and the stock market just to name a couple.  Both contribute to their retirement plans at work and those performances were good. However, Michael is considering rolling over his 401K account to a financial advisor, since the advisors at his company kept on leaving the firm and he knows little about his current advisor who is assigned to his account.  

Scenario 3: Dr. Chen has always invested his own money.  He has a total of 8 IRA, pension and retirement accounts. He needs to take his RMD and is in search of a firm to consolidate all of his retirement accounts.

Scenario 4: Travis has not worked with a financial advisor in 2 decades.  He is a corporate executive and is financially savvy.  He has a company 401k and a brokerage account.

Should you work with a financial advisor to help you manage your money?  By manage, should you grant the advisor discretionary authority to trade on your behalf whenever he/she see fits.  (I don’t accept discretionary accounts, nor do I plan to, ever.)

This is two one million-dollar questions.

Statistics show that people who engage a financial advisor’s services have higher rate of returns than if the investor managed the investments alone.(1)  Drilling down into the factors that contribute to the higher returns, it comes down to the behavior coaching that helps the investors have higher overall lifetime returns.

We all know we should invest when the stock prices are lower and divest when the prices are higher.  However, when almost all the media is shouting “end of the world” and this time the crisis is different.  All the people around you are dumping their stocks, scared, and packed up ready to leave the country (okay, the leaving part is just a joke).  You probably couldn’t help but sell some of your holdings while it is probably the better time to scoop up some bargain investments instead.

When you have all the time in the world, would you rather pick stocks/mutual funds instead of watching your daughter’s recital?  When you have down time at work or prefer not to climb the corporate ladder; sure, by all means, manage your finances yourself.  After all, you are smart and have time, why pay a financial advisor fees to manage your investment performance?

Are you absolutely sure that this is the best use of your time? Could you maintain your cool to buy low and sell high?  Are you certain that your intelligence and emotion bestowed on your own finances outweigh the objectivity and experiences of a competent financial advisor?

What if you are unable to manage your finances?  Are you the only one in the family who knows where everything is?

When you travel, would you prefer to get on an airplane to reach your destination quickly or drive your car?  If you could afford to buy an airline ticket, you probably could use the time better for anything but driving.

If you are In need of heart surgery, would you rather hire a general practitioner or an experienced surgeon, perhaps the Chief of Cardiology, to perform the lifesaving surgery for you?

Life is too short.  Is spending time with your family more important than managing your investments or financial plan?  Speaking of financial plan – it is kind of a “given”, a base for you to form a strategy and select appropriate investment vehicles; and if you don’t have one and don’t think you need one, then I am not the right advisor for you after all.

Otherwise, I would be delighted to help.

p.s. With regards to preparing a personalize financial plan, please see my other article, “The Way”.

Disclosure: Diversification and asset allocation strategies do not assure profit or protect against loss. Past performance is no guarantee of future results. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including loss of principal.

(1) Morning Analysts 11-05-17, Think Advisor 12/12/19

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