Regardless of when you started earning money or what life stage you're in, the general consensus is that it's never too soon to save and plan for retirement. No doubt we have all been bombarded by a plethora of commercials touting the benefits of hiring an experienced financial advisor to guide us through the dizzying array of financial products and investment options out there.
Some ads even have gone so far as to ask what people have in mind for their bucket list as a way of envisioning how they want to plan for such a future. However, before anyone dreams of where they will dock they yacht in the French Riviera, you should start by when it’s worthwhile to seek the help of a financial professional.
Assess Your Overall Financial Situation
Often, we have trouble judging a situation in which we are directly involved. And personal finances are something that people usually have trouble looking at clearly from the inside. Indeed, many people become uncomfortable even thinking about what they should do with their money. One of the biggest advantages of a financial advisor is his ability to look at your financial situation clearly because he remains outside of it.
Because an advisor doesn't have any emotional attachments, he can look at your finances and determine what steps to take in order to achieve your goals. For example, he may see that the interest on your car loan exceeds the interest that accrues in your savings account.
For this reason, he may recommend that you pay off the loan with your savings, so you can start amassing capital right away. You want to avoid losing money by servicing long-term debt at higher interest rates than your savings account accumulates.
My Finances Are Too Simple for a Financial Advisor
One of the things that keeps many people from turning to someone to manage their money is their belief that their finances just aren't complex enough to need outside assistance. Although this may be true for some people, it is often not the case. Even people with fairly straightforward income streams could be missing out on important opportunities to grow their wealth and protect their assets.
For instance, a widow approaching her seventies with a fairly large estate left to her by her husband may believe that the best course of action is to continue her late husband's financial plans because they worked out pretty well up to this point. Nonetheless, big life changes can reverberate through every aspect of one's life. Therefore, it might be the perfect time to ask some questions and reexamine how she should organize her finances going forward.
Did her husband own different stocks which might be sold to offset other capital gains? What kind of income does she need at this point to live comfortable throughout retirement?
Did he maintain a large balance in savings accounts earning low interest? These are just some of the questions a person in her situation may need to consider.
Are Financial Advisors Worth the Fees?
This is definitely an important question to ask and a valid concern since advisor fees will directly impact how much you are able to put away for the future. Although there are different kinds of financial advisor compensation models, it is common for advisors to charge a certain percentage of the assets under management. Typically, this fee ranges from 1% to 1.5% per year. Therefore, your financial advisor must add value that exceeds his fee and then some to justify his services. Indeed, you may have heard Warren Buffett emphasizing how important fees are to your bottom line and how you need to keep your investing costs as low as possible.
Financial Benefits of an Advisor
Nevertheless, a knowledgeable financial services professional can add real value to your portfolio. In fact, a recent study by Vanguard Alpha showed that a financial advisor can bring as much as a 3% net gain over time to a portfolio. This means that a client can net 3% more in revenue than they would have without the services of an advisor. Although this percentage may not sound like very much at first glance, a 10% gain instead of a 7% gain in your annual return will make a significant difference to your portfolio over the long term. While this type of gain is not guaranteed, even a 2% advantage can yield a healthy additional return over time.
Whether or Not to Hire an Advisor Remains a Personal Decision
There are many different financial situations in which people could use some advice such as moving retirement accounts, choosing long-term care insurance, or even figuring out whether it is better to buy or lease your next car. While these are just some of the types of situations in which an experienced financial advisor can come in handy, it always helps to have someone looking after your financial future. In the end, however, the decision to engage a financial professional lies with the individual. You must be totally honest about what your needs and goals are at this stage of your life and whether the value a financial advisor offers is integral to achieving those goals.
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