Being a DIY investor, you save yourself money because you do not have to hire a financial advisor to help you manage your investments. A DIY investor also has the advantage of gaining a sense of pride by managing their own investments. Here is another reason it is beneficial to be a DIY investor you learn about investments, the market, and strategies. With such strong reasons especially the big benefit of saving money why do people still need the help of financial planners?
For the majority of people ranging from high net worth to low net worth, there is still a lot of value that can be gained by working with a professional. Even the most seasoned DIY investor can still find value in working with a financial planner. It doesn’t have to be a situation where you either do things all on your own or have a financial planner completely do it for you. You can find a happy medium. Let’s dive into what a DIY investor can gain.
What is the most valuable thing to all humans? You might have guessed it from the subheading, time. Time is something you can’t get back, nor can you purchase more of. You have a limited amount of time and it’s important to use it wisely. So, the next question is do you have the time to handle your own investments? Maybe you have the time, but could it be better spent doing leisure activities?
If you are passionate about investing and have the time, then the DIY approach is just fine. For most people dedicating the time to just check-in and see how their portfolio is doing on a quarterly basis goes by the wayside, let alone researching investments and rebalancing.
You also have the people that think they will invest the time and after the first six months to a year, their enthusiasm seems to dwindle out. I’ve personally seen this happen all too often and it tends to lead to a neglected retirement portfolio.
There is also the set it and forget investor that has chosen some index funds and will ride out their same allocation for years or worse they choose one S&P 500 index fund, and they think they are all set.
In reality index funds can be a good investment strategy, but you still need to dedicate time to make sure you have a balanced and diversified portfolio of index funds. As well, you need to rebalance periodically and make sure you adjust your weightings in the various indexes you’re in. Is this what you want to spend your time doing?
Where financial planners can also provide value is by keeping your emotions in check. It is easy to get caught in the hype on the latest trend, a certain hot company, and want to invest all your money in it. Sometimes it pays off sometimes it doesn’t. This is the first emotional trap people get caught in.
Have you ever fretted about a downturn in the market and wanted to move your money to all cash or sold at a low only to have the market go back up? This is the second emotional trap people get caught in.
Having someone to help keep your emotions in check is the value financial advisors can provide. They know the statistics of how the market has operated over the last 100 years and know when to take a deep breath. You might not get the thrill of placing all your money on black and winning, but you won’t have to stomach retiring without a penny if things don’t work out.
The thing about humans is we have tendencies that are inherent in our DNA and even the strongest folks with emotional control still get caught with blind spots. Even subtle cues you don’t realize can lead to irrational decisions. They stem from talking with coworkers, reading headlines from news agencies whose objective is to use emotions to drive you to read their article, family members, or neighbors that are self-proclaimed experts. A financial planner can be an accountability buddy and help a DIY investor keep their emotions in check.
Alright so here is the third reason why DIY investors can still get value from working with a financial planner. They work in the industry daily which provides experience and wisdom because they must dedicate a lot of their time to this profession. Professionals will inherently be reading publications around the industry or attending continuing education classes in the field. While most of us may have access to some of the same resources a professional usually will be more current.
Take for instance another industry like the medical industry. Do you read all the trade publications, attend webinars, go to workshops to keep yourself healthy? Probably not unless it is your career path. To circle back to the time constraint, we don’t all have the time to becomes experts in every field. 10% of DIY investors may keep up with educating themselves, but most will not, and reading an article on Yahoo Finance or in Money magazine occasionally is not going to provide the same level of expertise.
Let’s talk about the tools of the trade. Technology is helping and changing many industries. There have been some wonderful tech tools to come out for the finance sector. They have increasingly helped the DIY investor but may not be enough. The professional-grade financial tools/software are sometimes only available to licensed financial advisors, or the cost may be inhibiting to a DIY investor. Do you have $5k to drop yearly on financial planning software?
At this point we have learned to be a good DIY investor, you have the time to devote to your investments, are able to keep your emotions in check, and educate yourself on things going on in the finance world. This next value add of working with a financial planner is next to impossible to obtain on your own.
Let’s pretend you are a quarterback in the NFL. You are obviously in shape, well trained, and experienced so why do you need a coach (aka. financial planner)?
Coaches, see things through a different lens than you. They can give you new perceptions and help you see blind spots. They may have different experiences to share that are beneficial. That is why every quarterback even though they are at the top of their game has a coach and benefits from one. The same applies to a DIY investor. You may be a great investor; however, it doesn’t hurt to have someone to point out things you hadn’t consider or provide some guidance.
Everyone focuses on stocks and bonds when they think about financial help. After all, that part is more exciting. However, there are more areas than just investments when it comes to finances. Literally, the name is financial planner, and the planning aspect is important. Investments do take planning but often they are correlated to a lot more of your financial life. Planners can help you understand how your budget plays a role, how much you should be saving, planning your estate, minimizing student loan debt, planning for big life changes, etc.
Money touches a lot of different areas of our life and guesstimating is not always the best way to go about it. Having a concrete plan can help you better obtain financial goals. There are a variety of basic tools you can find on the internet to help you plan and achieve financial goals, but they will not be as comprehensive as what a professional can do. It also is nice when someone else does the analyzing and calculating especially if numbers aren’t your thing.
Number six on the list of benefits that a financial planner can provide to a DIY investor is connections and networks. The networks and connections a financial advisor have can save you ample time in researching and scouting for other professionals. They also will have vetted their networks, so you don’t have to take a chance on someone.
What other professionals would I need to work with?
Here are a few examples of professionals that go hand in hand with the things a financial planner would be doing for you. You may need a tax professional to understand the intricoes of the tax world. An estate lawyer can create a trust or will for you. Let’s not forget about accountants who may be needed to help get the bookkeeping done for side hustles. These are connections a financial planner would be able to share with you. Although this might be a smaller reason to work with a financial planner it is an added bonus. When the time does come up to use one of these other professionals it is a lot more convenient to get a few names of people to get in touch with verse doing the leg work yourself.
Finally, the seventh benefit you will find working with a financial planner is bouncing ideas off them. Scientists, doctors, teachers, etc., all talk with each other for advice or best practices. Bouncing investment ideas at a financial planner can also be a smart move. It won’t hurt at least. You may not want someone to manage your investments all the time but looking for an advisor that is fee-only and charges by the hour may just be what you need to reaffirm your intuition or provide you some confidence. No one has the crystal ball to the market so why not collaborate.
To finish things off here are some straightforward stats to quantify the benefit of working with a financial advisor.
-In Vanguard’s study they found people working with a financial advisor had about 3% better net return, especially for taxable accounts. https://www.vanguard.com/pdf/ISGQVAA.pdf
-Morningstar’s study found 1.59% additional benefit for retirees. https://www.morningstar.com/content/dam/marketing/shared/research/foundational/677796-AlphaBetaGamma.pdf
-Evestnet PMC came to a similar conclusion as Vanguard at around 3% value add in their study. https://www.investpmc.com/sites/default/files/documents/PMC-CAP-SIGMA.pdf
As you can tell there is value that a financial planner can provide to someone that likes managing investments on their own. If you enjoy doing it on your own and feel well equipped, then continue at it. And once again it isn’t an all-or-none style approach. Find the right balance for yourself and search out the planners that will work with your style. If you are feeling you could use a partner and are starting to think of a few ways you may benefit from a financial planner then look no further and get a free consultation from Colorado’s best financial planners at BlackBird Financial Planning.