Are you frustrated with the level of growth you experience when you invest on your own? Are you confused about which investments to choose, or why you should pick them? Do you wonder how other aspects of your financial life should affect your investment approach?
If you answer “yes” to any of these questions, it’s probably a good time for you to take the next step in your investing journey by hiring a professional. A good financial advisor can tailor your portfolio to your unique circumstances, helping you achieve better investment results by reducing volatility, increasing return, or both.
7 Reasons You May Need a Financial Advisor
A financial advisor can help you avoid the many pitfalls of DIY investing, including these:
1. Trading on Emotions
It’s natural for your emotions to take over when you think about your money. But when it comes to investing, following your emotions can end disastrously. All too often, strategy and research are overcome by fear or exuberance. A professional financial advisor should have the training to help you make the rational (but often not obvious) decisions about your investments.
2. Failing to Employ a Disciplined Process
Tips, hunches, and following your gut rarely work out in the long run. Sticking to a proven investment strategy, especially in times of market stress, is a proven method of achieving superior results. A qualified financial advisor who has studied investment strategies and has years of investment experience to use as a guide can help you avoid the costly detours of following a gut feeling or a rumor.
3. Not Rebalancing a Portfolio
Selling a well-performing asset to buy another financial instrument that is underperforming is crazy, right? Well, not if you know what you are doing. Most DIY investors are reluctant to make seemingly counter-productive moves. Professionals know when it makes sense to make changes to your portfolio to return you to a suitable allocation, reducing your investment risk while locking in gains.
4. Putting Too Many Eggs Into One Basket (Like Your Employer)
The adage, “Invest in what you know” can sometimes be good advice. That said, if you don’t have experience with several types of financial assets, your portfolio probably isn’t diverse enough to offer you very much stability. This is especially true when “what you know” is the company you work for. Sure, buying company stock at a discount is excellent, but keeping a large portion of your portfolio in a stock closely tied to your salary is a recipe for disaster (just ask any Enron employee). A good financial advisor will make sure that your investment strategy is well diversified to limit your losses in down markets and to protect you from putting too much of your future well-being on the fortunes of any one company, including your employer.
5. Selling When the Market Gets Scary
If the market drops for the second week in a row and your portfolio value decreases, will you have the guts to stick with your investment system? Most DIY investors don’t and wind up selling some or all of their investments for a loss. Then, they miss out on the very lucrative rebound. When we hear about clients getting out of the market until it “settles down,” we worry that they will miss the initial rebound and that perhaps they will never get back in. Financial advisors aren’t intimidated by adverse market conditions, so their clients are in the market to take advantage of the very strong rebound that often (but unpredictably) follows sharp market losses.
6. Trying to Call Highs and Lows
You have heard “buy low, sell high” a thousand times, but attempting to call the peaks and valleys of a volatile market can cause you to lose out on a lot of profit. A professional investor knows that being afraid to pull the trigger on a trade in an attempt to squeeze every cent from it is perilous. Catching the majority of the trend is more important than maximizing every cent. The trick isn’t to buy the lowest and sell highest; the trick is to buy lower than it will be and sell higher than it was.
7. Sleepless Nights
Investing on your own is stressful. If the market is up, you are worried about whether you should ride the wave as long as possible or take your profit now. If the market is down, you worry your investments may never recover.
Of course, you could learn to invest yourself. Are you really interested enough to learn what a professional advisor works with every single day? And, just as importantly, are you confident you know how your investment decisions will affect your taxes, insurance, estate plan, and the rest of your financial plan?
There are experts who are ready to help. Do your due diligence, hire the best financial advisor you can, and rest easy. As we like to say, “The moment you stop worrying about money, life gets better™.”