Investing can be an important tool for building wealth, but investing wisely takes time, attention, and knowledge. Many successful people are capable of managing their investments; however, the disadvantages of going the DIY route might be overlooked, as well as the genuine benefits of having a seasoned financial advisor by your side.
Though the DIY investment approach may seem like a cost-effective solution, it could very well be more expensive than the advisory fees you save. An advisor plays a vital role in your financial journey extending beyond merely aiding in the selection of investments to buy or sell.
Diversifying Your Portfolio
As a DIY investor, you're undoubtedly aware of the importance of crafting a diverse portfolio to potentially weather market fluctuations. A significant advantage of working with a professional advisor is their access to resources and information. They can provide you with a broader range of investment options and help you allocate your assets across different classes, such as stocks, bonds, and real estate. You can feel even more confident that your portfolio is optimized to fit your risk tolerance and financial goals.
Having someone help you make sense of a complex set of options can open your eyes to more possibilities. A qualified advisor has the expertise and knowledge to guide you toward making well-informed decisions.
Staying the Course
It's easy to get caught up in the hype of the market and make impulsive decisions based on fear, excitement, gut feelings, or hot tips. Emotions can play a role without investors even realizing it, potentially leading to hasty actions that negatively impact long-term financial goals. A professional financial advisor can help keep you focused on the long-term trend of a stock instead of its short-term highs and lows.
One of a financial advisor’s most important jobs is to help you avoid costly mistakes and remain committed to your long-term plan. By collaborating with an advisor, you gain access to their expertise, knowledge, and resources, helping you to make informed investment decisions in line with your risk tolerance and objectives.
You’ll have confidence knowing that you have a professional in your corner to help you weather the ups and downs of the market.
Unraveling Biases
Every investor comes to the table with their own set of money beliefs and past experiences, and these can cloud investment actions. Trained financial advisors can help investors avoid succumbing to cognitive biases when managing their money.
One example of cognitive bias when managing money is the "anchoring bias." This bias occurs when an investor fixates on a specific piece of information, such as the purchase price of a stock or the current value of their portfolio, and uses it as the basis for all subsequent decisions.
For example, an investor may purchase a stock at $50 per share and become anchored to that price, refusing to sell even when the stock drops to $30 per share. This bias can lead to significant losses and missed opportunities, as the investor is not considering current market conditions and may be holding on to a losing investment for too long.
Another example of cognitive bias is the "confirmation bias." This bias occurs when an investor seeks information confirming their beliefs and ignores or discounts information that contradicts them. For instance, an investor who believes a particular company is undervalued may only read articles and analyses supporting this view while ignoring information suggesting the company may be overvalued or facing challenges.
Both of these biases can lead to suboptimal investment decisions and lower returns over the long term. But being guided through predictions and probabilities will help you better understand the likely outcomes of your investment decisions based on logic and reason. This can ultimately lead to better investment outcomes and more effective wealth management over the long term.
Best and Highest Use
Studies show that the average investor typically underperforms the market when it comes to returns, despite expecting to do better. This may be due to some of the factors we’ve listed above, but it also may come down to a lack of broad experience or not having access to the latest research and insights available to financial industry professionals.
Remember, as financial advisors, our success is intertwined with that of our clients, and we deeply care about your outcomes. While you have dedicated your career to acquiring the skills that have enabled your achievements, we have devoted our careers to mastering the skills that allow us to assist clients in reaching their investment goals.
Ultimately, we want to empower you to achieve financial security and peace of mind, so you can focus on enjoying life and pursuing your passions. So, let us help you navigate the complex world of investing and make the most of your hard-earned wealth.
Reducing Financial Stress
Most people find managing their investments to be an unwanted headache, especially when juggling a demanding career and countless other responsibilities. Effective investing takes a significant amount of time and attention, and there’s much at stake. Errors can be costly.
A financial advisor can be a partner, providing impartial advice and keeping a watchful eye on not only your portfolio, but on your whole financial picture. As part of comprehensive financial planning, a financial planner will also consider your budgeting and cash flow, liquidity, taxes, risk management, retirement and estate planning, record keeping, and much more.
In the end, we can help you feel more confident in your investment choices and relieve you of the day-to-day management of investments so that you can pursue your financial goals over the long term with less stress and worry.
Embracing a Financial Partner
From mitigating risk to maximizing investment opportunities, your advisor can develop a financial plan tailored to your needs while helping you navigate complex financial situations. Ultimately, employing a financial advisor can be incredibly advantageous, even for those who are knowledgeable about investing. Just like we visit a trusted doctor for any physical ailments or preventive measures to maintain our health, hiring a financial advisor to take care of our financial well-being is equally important.
At the end of the day, our goal is to empower you to make informed decisions that are right for you, whether you work with an advisor or are a DIY investor. We understand that giving up control of your finances can be challenging and that advisory fees may be hard to justify at times, which is why we are committed to delivering value through our expertise, insights, and hands-on approach.
The Hatlestad Group is an independent wealth management firm based in Edina, Minnesota, primarily serving successful head-of-household women, late-career executives, and pre-retirees. With a tailored approach to fee-only comprehensive wealth management, they empower clients to live out their next chapter with vision, wisdom, and resources, creating a purposeful and meaningful future. They can be reached by phone at (763) 259-3637, via email at info@thehatlestadgroup.com, or by visiting their website at thehatlestadgroup.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.