Five ways financial advisors earn their keep
Navigating your finances can be emotional, complex and confusing.聽One way to stay on track聽is to work with an experienced financial advisor. Hiring one may not be cheap, but it鈥檚 well worth it 鈥� especially when you need to set goals or understand how major life decisions impact your finances.
Here are the top five things聽a financial advisor can do for you.
1. Help you establish goals and create a plan
Sometimes聽people fall behind on preparing for聽聽or other life goals because their objectives aren鈥檛 specific enough. You have to spend time envisioning your future聽and thinking about your timeline聽so you can save an adequate amount.
A good financial advisor will prompt you to think deeply about many aspects of your life, such as family, community involvement, fun and leisure activities, and the legacies you want to leave. And if you鈥檙e in a relationship, your advisor聽can聽help you and your partner get on the same page about what you want and how to achieve it together.
2. Educate you
Many people think of聽their finances as聽a black box. They know they have to put money in to retirement accounts, for example, and that more money comes out at the end, but how they聽got from point A to point B is less clear. A financial advisor聽can聽help demystify how your financial choices affect the outcomes that you experience. Together, you鈥檒l look at the bigger picture and see how the pieces of your financial plan work together to reach your goals.
He or she can also help you understand聽technical aspects of your finances, such as聽determining the best asset allocation or retirement income strategy, and聽more big-picture issues, such as聽how to approach your career or work-life balance.
For instance, I鈥檝e seen many clients assume that they were聽locked into a particular career path. I help them think creatively聽and view聽each spouse鈥檚 career as聽one asset within a聽portfolio, removing the pressure on just one person鈥檚 earning power.
3. Ensure you invest wisely
It鈥檚 important to maintain an appropriate amount of risk in your portfolio. You can鈥檛 afford to be overly cautious when investing for far-off goals, such as retirement,聽because you鈥檒l miss out on many years of potential compounding returns. At the same time, choosing聽high-risk investments could lead you to lose more than you can afford.
A good advisor will consider聽how much volatility your portfolio can withstand and your emotional聽聽when helping you pick investments.
4. Provide objectivity and discipline
It鈥檚 only natural聽to react poorly to market volatility, but you shouldn鈥檛 allow聽鈥渇ight or flight鈥� responses to drive your investing process.聽When you want to change course, your financial advisor聽should be there to remind you why you鈥檙e using the strategy you have in place.
You should leave each meeting with your advisor feeling that you鈥檙e making progress on the aspects of your plan that you can control.
5. Anticipate how life transitions will affect your finances
Because your advisor works with lots of clients, he or she聽will have seen scenarios similar to yours聽many times, and have insight into the different choices you can make and outcomes you can expect. An advisor鈥檚 input can be valuable聽during聽important life transitions, such as starting a family, changing careers, navigating a big stock option event, refinancing a home, or entering retirement.
A financial advisor can point out options you may not have considered聽and let you know what other decisions聽could be coming down the road. The better you understand your options, the more informed your decisions will be.
Hard work is worth it
Working with a financial planner is not unlike working with a personal trainer 鈥� when you have someone holding you accountable, you鈥檙e much more likely to show up at the gym and work hard.
And the hard work can pay off. Two of my clients are a couple, Matt and Stephanie, who were both working full time when we first met.聽Matt had been聽the primary breadwinner, but he聽took some time聽off when they had children. During this period, Stephanie鈥檚 career flourished and Matt found that he really enjoyed being a stay-at-home dad, so we considered聽different options. We decided to聽leverage Stephanie鈥檚 highest-earning years聽so that聽Matt could聽stay home awhile longer. The plan also聽allowed Stephanie聽to take an early retirement, at which point Matt would聽go back to work.
A financial planner can be tremendously helpful over the course of your financial life, earning his or her聽keep in a variety of ways.
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