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Should I Get a Financial Advisor?

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Although some experts say it is a good rule to hire a counselor whenever you can save 20% of your annual income, others recommend that you get it when your financial situation becomes complicated, for example when you inherit from your parents or want to increase your pension funds.



a man and a woman sitting at a table: A financial advisor talking to clients


© (Getty Images)
Financial advisor in conversation with clients

“We’re more than stock pickers,” says Jose Sanchez, a certified financial planner with retirement wealth advisors from Santa Fe, New Mexico. “People often procrastinate in making decisions and they need a light push. We focus on the human side of financial planning and spend 80% of our time listening, discovering those goals and how to achieve them.”

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When to get a financial advisor? People need to be honest with themselves if they are interested in it managing their money, says Daren Blonski, CEO of Sonoma Wealth Advisors in California.

“You can’t do it part-time,” he says. “It’s short-lived to think you can wage war in your portfolio on the weekends.”

During a bull market when markets seem unbeatable, “everyone works well because the tide is rising, but then the market changes and delivers the cake to those who thought they had mastered investing in stocks,” Blonski says.

To answer the question “Do you need a financial advisor?” consider the services and benefits of a financial advisor:

  • Development of investment strategy.
  • Tax minimization.
  • Avoiding emotional decisions.
  • Risk reduction.
  • Structuring account withdrawals.

Development of investment strategy

Portfolio diversification It is crucial to avoid instability, which increases the amount of risk and potentially the amount of income generated by your pension funds. A diversified portfolio helps ensure stability during a market crash or prolonged geopolitical event. Invesco QQQ ETF (code: QQQ) is a popular exchange-traded fund, as it tracks about 100 of the largest U.S. and international nonfinancial companies listed on the Nasdaq. Over the past 30 days, trading volume averaged about 36.4 million shares and now has about $ 163.5 billion in assets.

“Right now, it’s a perfect example with QQQ ripping and roaring and everyone is piling up there,” Blonski says. “It’s important to have diversification because the market is always coming back into balance and correcting itself.”

When investors allocate large percentages of money to sectors like technology, they bet on those industries that outperform them in the long run. “If you over-allocate money, you could make money in the short term,” Blonski says. “The market will give you that back in the long run. When things get overbought, they often sell too much.”

Tax minimization

While removing most of your hard-earned savings in a 401 (k) plan or traditional single retirement account is a good strategy, other options help investors pay lower taxes and save money on retirement.

A diversified approach to investing is crucial because “you don’t know when you’re going to need the money,” Blonski says. People who believe they will end up in a higher tax bracket when they retire may realize that it makes sense to have a Roth IRA because it allows you to withdraw money tax-free, he says. Or if you believe your financial situation will diminish by age 65 and when you will pay a lower amount of taxes, you should hide more money in the IRA. “Advisors can help you navigate the rules by saving money,” he says.

Some investors get caught up in “paralysis analysis“and in the end they don’t contribute anything to retirement accounts because they can’t decide between contributing to Roth or a traditional IRA,” says Anna N’Jie-Konte, founder of Dare to Dream Financial Planning in Kensington, Maryland.

“I’m a fan of simplicity and the use of numbers to cut through emotions,” she says. “For retirement you just need to contribute something.” She says she would rather see people contribute to the Roth IRA – when traditionally it may be more optimal – than to contribute anything.

People who earn relatively high incomes, have a simple financial situation where there aren’t many deductions and don’t own assets can look more at a traditional IRA, as this will provide some additional tax breaks, N’Jie-Konte says.

Gallery: Suze Orman, Warren Buffett and other money experts discuss how best to prepare for retirement (GOBankingRates)

Investors who own a house and have children and other deductions might find it more attractive to invest money in Roth because contributions are taxed at your current minimum tax rate just like your salary.

Opening a health savings account, known as the HSA, can also minimize the amount of tax you pay and help you save money for retirement, as any money not used for health purposes is overturned every year like an IRA. HSAs are useful for triple tax breaks: contributions are tax-free, money accumulates tax deferral, and money used for medical expenses is tax-free, says Luis Rosa, a financial planner and founder from Las Vegas and Los Angeles building a better financial future. “You can use the money in the HSA for participation, glasses, dental work and many other medical purposes,” he says.

Avoiding emotional decision making

When the market is unstable or undergoes a massive decline due to geopolitical events or weaker economic conditions, investors can become victims of their emotions.

Investors often want to buy stocks when the market is relatively overvalued, says Lamar Watson, financial planner and founder of Dream Financial Planning of Restoration, Virginia.

Too many investors think they can successfully time the market over a long period of time, although active trading usually leads to poor performance of the S&P 500, which averages 10% of annual returns going back to the early 1900s, he says.

“People need to understand how risk averse they are and what their time horizon is,” Watson says. “Keep your costs low and understand your risk tolerance.”

Relying on logic and data can be a challenge, but advisors can help investors stay on track and stick to their financial goals. “Counselors are more likely to become emotional towards the market and can provide a different perspective,” Blonski says. “Most retail investors get caught up in the fear of leaking and selling when they shouldn’t be selling, and buying when they shouldn’t be buying.”

Risk reduction

Pension portfolio management includes determining the amount of risk investors are comfortable. Although stocks are more volatile and risky assets, they generate higher yields over a longer period than bonds. When investors approach retirement, they often allocate a large percentage of their money to bonds to avoid market instability and generate higher income. “While fixed-income investments certainly do not have the appeal of growth for growth, they do ensure a balance in times of volatility, an important component of any well-rounded portfolio,” Blonski says.

Mutual funds or ETFs can also reduce the amount of yield volatility compared to individual stocks. There are a lot of new investors looking to buy individual stocks and should buy mutual funds instead because of the lower costs, says Emlen Miles-Mattingly, CEO of Gen Next Wealth in Madeira, California.

“Investors need to understand what they are investing in and focus on the value of the companies,” he says.

Investing in defense stocks can also help investors hedge against cyclical stock volatility. Defense stocks are the opposite of cyclical stocks because they are included in industries that are needed regardless of economic conditions, such as consumables, utilities, and health care. While defensive games can generate lower returns than cyclical ones when the market is performing well, they also have a lower decline when the market declines.

Structuring withdrawals from retirement accounts

The expert guidance of a counselor can be especially helpful when planning to retire. When you get close and retire, “you have to be very careful to protect your capital,” Blonski says. “It’s good to have another pair of eyes on your portfolio.”

Cash flow planning is important because many people underestimate the amount of money they need to retire, says Camille Koppenberg, financial advisor to Asset Advisors of Ferndale, Washington. Before people decide to retire, they should review their costs, especially health care costs, including Medicare and additional plans. They should also consider the cost of long-term care and determine when is the best time to receive social security benefits and how this affects their taxes.

“You have to be realistic about it,” she says. “I hope we talked about cash flow years before retirement, not during retirement.”

Most people need to save more for retirement and plan for the completion of the bull market and outstanding results like a global pandemic that will affect their retirement. “We need more money than we think we need,” Koppenberg says. “If you have a raise, it’s time to increase your retirement savings. We need to think about it in percentages, not in absolute dollars.”

Bottom: Is it worth your financial advisor?

Lastly, the only person who can determine if you need a financial advisor is you. The situation of each investor is different, so everyone will find a different value in the relationship of advisors.

Generally speaking, a financial advisor is likely to pay off if:

  • You want help developing an investment strategy.
  • You need tax guidance.
  • It’s hard to keep your emotions out of your investment decisions.
  • You are close to retirement.
  • You want help with risk reduction or planning a retirement strategy.

A financial advisor may not pay off if:

  • You are comfortable making your own investment decisions.
  • You don’t need help managing your portfolio.
  • You are not interested in complex planning strategies such as tax minimization.
  • You are not approaching or you are retired.

Copyright 2021 American News and World Report

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