Paying for a financial advisor seems silly if you’re struggling financially. And even if you’re doing well, it sounds strange to pay someone else when you’re over here trying to increase your net worth.
But a small investment in a financial advisor could mean a huge difference for your long-term financial game.
Let’s talk about what that means…
Asset Allocation and Investment Performance
You’ll find a lot of differing opinions on asset allocation with a quick search.
If you’re still young, should you be in all stocks? Do you have to include some bonds after you hit 30? What should the mix be?
These are all questions only you can decide on, but a financial advisor can look at your specific situation and make some recommendations that fit your risk tolerance and the goals you want to achieve.
There’s no one-size-fits-all answer when it comes to asset allocation.
Once you decide on the proper allocation, how do you know which funds, stocks, or bonds to choose? Or maybe you would prefer real estate or a REIT (real estate investment trust).
If you’re thinking about choosing a financial advisor, you can look at their past performance to see if they have a good track record. Of course, as we all like to say in the finance world, past performance doesn’t dictate future results. However, it will give you a good idea of what to expect.
Minimizing Taxes and Accurate Tax Reporting
With new apps like Robinhood, purchasing stocks is easier than ever, but this is getting a lot of people in trouble with their taxes.
If you go in blind, and don’t realize things like the difference between short-term and long-term taxes, it could be devastating when tax time comes, even if you’ve done well with your investments.
A financial advisor can advise you on accurately reporting everything, and most importantly, on how to reduce the taxes you pay.
Whether you want someone to see the ins and outs of your finances or not, it will help… if that person is a well-educated advisor.
Most people like to keep their finances private. There are many reasons for this:
- You’re embarrassed about your financial situation
- You don’t want people to know how much debt you have
- You don’t want people to know how much wealth you’ve accumulated
- You were simply taught finances are a taboo topic to discuss with others
Whatever the reason, people often don’t like others to see their finances. But that’s exactly what an advisor is for.
If you only show your finances to one person, let it be your financial advisor. The accountability they can provide will help you stick to your goals and remind you of the long-term plan.
Knowing All Your Options
We’ve talked about stocks, bonds, funds, and even REITs, but your options don’t end there.
How do you know all your options? Well, a financial advisor knows your options. That’s what they’re here for.
When you have questions about your options, and you want to find different and new options, an advisor can walk you through all of that.
You need the options that fit your life and your risk tolerance. A good advisor will start by taking those things into account.
Even those of us who are savvy with money and have done our research can still question our decisions.
When you’re dealing directly with an experienced financial advisor, you’ll have peace of mind in knowing you’re making the best decisions for your personal situation. Personal finance is exactly that: personal. If you want to sleep well at night, knowing your investments are in good hands, find a good financial advisor.
When you deal with a fee-only financial advisor (an advisor you pay one fee at a time) or a performance-only advisor (an advisor you pay only upon performance), you know you’re getting the most bang for your buck. Take a performance advisor for example… you only pay them if your investments perform.
It’s dangerous to pay an advisor who’s getting paid based on the investments they recommend. You don’t want someone suggesting investments that only help their pocketbook.
Creating Realistic Financial Goals
If you’ve never felt like your financial goals were good enough, you could rely on an advisor to help you set some realistic, attainable, and huge financial goals. They will stretch you to do as much as possible with your money.
Goals should be SMART (Specific, Measurable, Attainable, Realistic, Time-Bound) as we say in the productivity world. All too often, we like to set goals like, “make more money” or “perform better with my investments” or “build my retirement.”
But none of that can be measured.
How do you know when you’ve accomplished your goals if they aren’t specific?
A financial advisor will sit down with you and set some goals specific to your situation.
If you find a good financial advisor, it could be a small price to pay for a huge difference in your finances 30 years down the road.
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