Do It Yourself or Hire an Advisor?
DIY vs Expert: How to Make the Best Choice
Whether you do it yourself or choose an expert for financial advice, you are choosing an advisor. Start the decision process of hiring an advisor by asking a few reflective questions: If a friend needed an advisor, would you recommend you? Do you want to hire you as the advisor or do you need to hire someone else? What is the value of your time compared to the monetary cost of using an advisor? Do you enjoy the process of investment research and financial planning or do you dread doing it to the point of neglecting your finances?
Be Honest With Yourself
The greatest virtue in the entire universe of personal finance is humility; because the ability to realize you don't know everything is the trait that precedes all of the other great virtues, such as honesty, simplicity, patience, moderation and frugality--all of which combine for the greatest of success in investing and other areas of financial planning. Humble people hire advisers but humble people also make great investors. Therefore it is important to be honest with yourself and check your humility.
Look at the Big Picture of Personal Finance
Investing may be the one area of personal finance that has attracted more do-it-yourselfers than any other area of financial planning. If you have what it takes to be a great investor, what about the separate and overlapping financial areas of taxes, retirement, insurance, estate planning, and cash management (budgeting)? Perhaps you've done a good job of building a portfolio of mutual funds but your overall returns suffer because you failed to place tax-efficient funds in your regular brokerage account...
Or you've done a great job of saving for retirement but a major economic recession strikes a few years prior to retirement and it derails your plans... Or you spend needless money on unnecessary insurance products... Or you die at a younger age than you've imagined and your debtors and the federal government receive the bulk of your estate assets...
You get the picture (see "honesty" above).
Remember That More is Less
Certainly there are many wonderful tools and information sources available online for investors to make wise decisions about investing. Also, the unprecedented accessibility to simple and powerful investment vehicles, such as mutual funds and Exchange Traded Funds (ETFs), makes it easier than ever for investors to research, make decisions and implement savings and investment goals. However, more choice often leads to lesser ability to make good decisions and investors can make the classic mistake of spending too much precious time on money when they could be spending it on higher priorities, such as family, health or personal goals.
Measure the Value of Time
How much is your time worth? Have you calculated it? What is your return on investment (ROI) for the time invested in financial planning? What is the non-financial cost of money? For example, if you are at least as successful as the average professional money manager you may receive returns just slightly higher or slightly lower than an S&P 500 Index fund. In other words, unless you truly enjoy investment research or the process of financial planning, the extra time invested may not be worth the financial outcome.
If Your Needs Are Simple, Do It Yourself (With Caution)
Take it from me, an investment advisor and Certified Financial Planner (CFP®), the average person's financial planning needs are quite simple and manageable without the help of an expert. However, complexity is added by the misguided perception that elaborate plans, strategies and schemes are necessary for financial success. If you are able to adhere to the simple rules of asset allocation, use index funds, automate finances where possible, use only term insurance, keep debt under control, and you won't cross over $2 million in assets any time soon, you can certainly manage your own finances.
There is, however, a significant caveat to the do-it-yourself path: Money is one of the most emotion-provoking things on earth. You must be able to avoid your worst enemy--your self--by not succumbing to the normal and damaging emotions of greed, fear, complacency and hubris.
An investment advisor or financial planner can think about your money with little or no emotion but you may not be able to separate the two, at least if you are normal.
Consider the Value of an Advisor
Skill and knowledge matter less than good judgment. Some investment advisors and financial planners are just as susceptible to damaging emotions and poor judgment as the average do-it-yourselfer. However, a good adviser will look at your money logically and help lay out an objective road map to follow so you can reach your future financial goals while living your present life more fully. How much might this be worth to you? Perhaps even your own acquired skill and knowledge of financial matters is greater than that of many financial advisors but how much does quality of life factor in to your decision?
Find the Right Advisor
Again, whether you do it yourself or you use an expert, you are choosing an advisor. The question boils down to this: Do I want to hire myself or do I want to hire someone else? If hiring someone else, you want to find someone who works under a structure that promotes those great virtues (humility, honesty, simplicity, moderation and frugality) that we mentioned previously. This eliminates most advisors who are paid only by commissions and/or those who are incentivized by products they sell. In other words, you don't need a salesman--you need an unbiased advisor that is paid by no one else but you.
Consider what The Wall Street Journal said in the article, How to Build Your Financial Dream Team:
Insurance sales people, stockbrokers, accountants and even lawyers might call themselves financial advisers, but your specific needs might not fall under their area of expertise...
Which credentials matter most? Certified financial planners, chartered financial analysts and certified public accountants have completed extensive course work and passed many hours of exams. These designations also require work experience and additional continuing education each year...
In addition to putting your interests first, those with fiduciary obligations must disclose any conflicts of interest that may affect their decisions and tell you about any fees, commissions or other factors that could influence the decisions they make on your behalf. If your planner isn't a fiduciary, ask what commissions or fees will be received on any investments you make.
The old adage, "The only person you can trust is you," is wise. However, choosing an advisor is something that only you can do for yourself. Therefore, if you trust yourself, you can choose an advisor for yourself, whether that advisor is you or another person.
Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.