I remember when my folks would take me to a candy shop or convenience store and let me pick out a candy bar. It was the greatest. There I was in front of dozens of delicious, chocolatey treats. It was a tough call on which one to get my hands on. We in the financial planning field are analyzers, so you can bet that I stood there weighing the pros and cons of a Milky Way versus Three Musketeers and the like. There were so many choices.
Having too many options, even if they are good things from which to choose, can be debilitating. This is the nature of the investment world nowadays. Sorry to take you from that fun childhood image back to the boring ole world of your money! Now I want to go grab something sweet to munch on. But let’s stick to the plan.
Today’s world of technology has brought about some cool innovations in the finance industry. You can buy stocks and funds at the click of a button (or swipe of the smartphone), you can choose a single fund in your 401(k) that rebalance automatically for you, heck even e-filing a 1040 tax return is amazing versus the old days of completing paper forms and mailing them in.
For investment management, there are many options today. You can go with an investment advisor, a robo-advisor, or even manage it all yourself. Each has its pluses and minuses. For most busy people, it’s best to hire a professional financial planner.
We all lead hectic lives. Most of us have families to care for, demanding careers, hobbies, friends, among other activities, which quickly fill our days. Spare time is a rare time. Spending hours and hours each week optimizing your financial plan (including studying up on the latest tax & retirement laws) is just not feasible. It’s worth it to hire a pro.
And it’s not just hiring a professional investment manager – you need a Certified Financial Planner (CFP). A CFP has expertise in investment management, yes, but also in other hugely important realms like tax planning, risk management, retirement strategies, estate planning, insurance – and others. We at TFC monitor the changes in the tax laws, so any little change that Uncle Sam (or those folks in Congress) makes is on our radar. Those changes impact your retirement – pure and simple!
But what about this new thing called a ‘robo-advisor’? A robo-advisor is basically a computer program telling you what your investment asset allocation should be after you answer a few basic questions. We think robo-advisors are great for folks just starting out – the algorithm will provide you a solid investment portfolio for your risk tolerance and it will rebalance your investment account automatically.
The problem with robo-advisors is that they quickly become inadequate for individuals with growing net worths. Once someone reaches a few hundred thousand dollars of investable assets, a financial planning expert is often far superior in service. The extra cost is worth it. A robo-advisor does not offer an all-encompassing financial plan.
All of this sounds good on paper and in a spreadsheet. But emotions and stress play a huge role in investment management, too. Think back to when the stock market was highly volatile – like 2008 or even more recently in early 2020. It’s tough to stomach wild market swings day-in, day-out – even for a long-term investor. One of the often unseen values a professional financial planner brings is a smoothing out of the emotional roller coaster. Many investors got so fearful during 2008 that they sold out after the market dropped big. This is human nature – it’s the norm. A financial planner helps guide individuals through those hard and stressful times.
Imagine the value of sticking with it through 2008 versus selling it all, then missing out on the huge bull market from 2009. That value could buy a lot of candy bars today!
Here’s the point
- With technology comes options. It can be overwhelming to decide which fund is right for you. Managing your own money takes knowledge & skill, time, and being able to handle the stress of it all.
- Robo-advisors are computer programs that recommend an investment portfolio based on what you tell it. The program rebalances and performs a few other basic actions for simple investment accounts.
- A professional financial professional, a Certified Financial Planner, has expertise in many areas across the financial spectrum and can help guide individuals through hard times.
Action items
- Are you considering which route to go with your financial future? Sit down with us at TFC to discuss your options. Maybe a robo-advisor is the right fit for you right now. Maybe you are savvy enough to manage your own money at the current season of your life. But perhaps you are busy and don’t want to take on the stress of going it alone and staying ahead of the financial landscape.
- Think about a friend or maybe a younger family member who may benefit from the efficient services of a robo-advisor. We can talk to him or her about how to get started. Forming good habits early often leads to a prosperous financial future.
- Have confidence in our expertise across the many areas of financial planning. It’s not all about picking funds and rebalancing.
Photo by Joshua Mayo on Unsplash