Buying a home, saving for retirement, putting a child through college – life is filled with large purchases and financial milestones. And, let’s face it, unless you majored in finance in college, a lot of the financial information out there can seem like a foreign language.
To make sense of it all, some people turn to the help and support of a financial advisor. As licensed professionals and experts in all-things personal finance, these advisors can help you navigate your financial goals and make the most out of, and even maximize the value of, your money.
But when does it make sense to hire a financial advisor, and when are you better off managing on your own? Read on to learn exactly what a financial advisor does, and when it may make sense for you to bring one on to help reach your financial goals.
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What is a Financial Advisor?
A financial advisor is a “catch-all term” used to cover a variety of professionals and services ranging from investment management through to financial consulting and planning. Depending on your preference, a financial advisor can be brought on in any capacity, from general assistance used already to complete management of your finances.
What Exactly Does a Financial Advisor Do?
Because “financial advisors” cover a range of services and expertise, their exact services can vary. However, in general, a financial advisor assesses your current financial situation (including any assets, debts, monthly expenses, etc) and helps you identify areas for improvement in relation to your overall financial goals. So, depending on your specific goals and needs, you’ll want to look for an advisor that specializes in that area.
For example, if you’re looking to save for retirement, you’ll want to look for a financial advisor who has expertise in retirement planning to help you develop a specific budget and savings plan to reach that goal. On the other hand, if you’re looking to diversify your investment portfolio, a Registered Investment Advisor (RIA) would be the better choice to help you.
When Does it Make Sense to Hire the Help of a Pro?
There’s no right or wrong answer to this question, but, as a general rule of thumb, some financial experts suggest hiring an advisor when you can save 20% of your annual income. Another good time to bring on the help of a professional is if your finances have changed unexpectedly, such as if you receive an inheritance.
Before investing in professional help (which can be costly), Investopedia suggests asking yourself a few key questions, including:
- Do I have a fair amount of knowledge when it comes to financial terms and investing?
- Do I enjoy learning more about finances?
- Do I have the time available to research, monitor, evaluate, and make changes to my portfolio?
If you answered “not really” to any of these questions, it may make sense to invest in the expertise of a financial advisor to help you make the best financial decisions, while saving you time and potentially costly mistakes when it comes to allocating and investing your hard-earned money.
… and When One Really Isn’t Needed
On the contrary, if you’re someone who enjoys researching, is fairly risk-averse, and has the time to allocate to financial planning, you may not need to hire a professional. We’re lucky to live in a time when there are plenty of (free!) financial influencers, informative blogs, and YouTube channels available to help DIY-ers achieve their financial goals. Just note that it can be time consuming, and, like anything new, there is a learning curve.
Four Financial Influencers You Need to Follow
Like any financial decision, hiring a professional has its pros and cons depending on your unique financial goals. Before turning to the pros, be sure to conduct thorough research and verify their credentials. You are trusting them with your most valuable assets, afterall!
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The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, we advise you to consult with a licensed advisor.
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