In the last few weeks, I’ve met with several prospective clients who are the DIY types when it comes to their portfolios. Despite their strategies, we found areas where professional advice could have helped.These prospects were extremely intelligent individuals — nuclear engineers, Ph.D.s, etc. — who subscribed to the Bogle Theory. This is a concept developed by Jack Bogle from Vanguard. He recommends buying index funds and holding them; just leave them alone and don’t worry about them. While they’ve managed to perform well for themselves, their reason for in coming to meet with me was to see if their current investment strategies were in line with their ultimate goals.
At first, they argued it was just too expensive to hire an advisor. Here’s the truth, though: advisor fees can range anywhere from 0.5% to 2%. However, most are typically between 1% and 1.5%. Many investors feel the fee is worth it for the customized professional guidance they receive.
One of the biggest reasons it’s difficult to relinquish our control and let an advisor manage our money is because money has an emotional component to it. However, that’s also why it’s vital to allow someone else to take charge sometimes. I even let someone else manage my money. Why? Because when we manage our own money, we have a tendency to be either too conservative or too aggressive and think we can “fix” our portfolios. That fee becomes worth it just to keep us from a making an emotional mistake.
That’s not to say you can’t do it yourself. Obviously, there are those who are quite capable of achieving favorable outcomes when they go at it alone. If you’re just getting started, you may want to go the DIY route. There are many online resources that can guide you. Those who live simple lives can also do great for themselves. For example, if you don’t own a business, have very little debt and aren’t closing in on retirement, the benefits of DIY investing may serve you better than an advisor could.
The key to a DIY success story is often knowledge. These investors take the time to learn what they need in order to succeed. They often aren’t following the stock market monthly or allowing news to influence their investing decisions. Emotional investing is never a good idea. If you’re one of those people who wants to dive in and learn as much as you can about investing, retirement, insurance, general finances, etc., then the chances of you being a successful DIY-er will undoubtedly skyrocket. However, gaining all the knowledge you need to be effective in these areas can be a daunting task. Just like some people are triumphant when it comes to losing weight alone, there are those that will enjoy success in investing alone. But those results, while not impossible, are not typical.
Recently, one of the top avenues DIY investors have been turning to is robo-advisors, which provide an algorithm-based approach to portfolio management. These can be great for the DIY investors. But robo-advisors can’t look at your finances in the context of your life.
In fact, there probably isn’t another area of our lives, outside of money, that we take such a proactive, hands-on approach. For example, when it comes to our automobiles, we’ll gladly pull up to a mechanic shop to get the proper maintenance for any problem we may be experiencing. We’ll whip out our wallets and pay that fee because we trust the experts know what they’re doing; they work on cars daily. Yet we often won’t let anyone help us maintain the proper balance in our money matters.
When we hire a professional — one with good transparency — he or she can show us holistic benefits. That means working on more than just your portfolio alone. Professionals can help find ways to minimize your taxes and keep you on track to reach your long-term goals. The list goes on and on. A good advisor/wealth manager in a fiduciary role is entirely focused on helping you reach your dreams, making the advisor worth the money you’ll spend. That’s why many wealthy people tend to hire outside help. They aren’t focusing on the fee; they’re looking at the gains they’ll reap in the future with a professional’s help.