In today’s complex investing environment, finding the right advisor is more important than ever.
With the simple act of buying and selling stocks full democratized by the internet, the next revolution in financial technology appears to be something called “robo-advisors”. They may not be what you think – no, robots are not about to overtake society by doling out unsolicited stock tips – a “robo-advisor” is an automated, artificial intelligence-based advisory service accessible through the internet. These “robo-advisor” sites ask their users a list of basic questions and then use that information to place their money in a low cost, cookie-cutter investment portfolio. Users are essentially left on their own, as there is relatively no human oversight and/or brick-and-mortar office to visit if you have any questions.
The rise of the robo-machines must surely mean the destruction of human advisors, right? In our humble opinion the short answer is “no”, advisors are not going anywhere! In fact, here are five reasons why a real financial advisor might just be the key to your family’s financial future:
Cut through the noise.
The wealth of information (pun intended) about money management can paralyze even the sharpest “do-it-yourself” investor. While googling a DIY home improvement project might lead to only a few possible solutions (all of which will generally work), research into the world of investing, on the other hand, will point to a mind-numbing list of oftentimes conflicting choices.
While having more choices can be a good thing in certain realms (think: Netflix shows, ice cream flavors, clothing options), when it comes to something as serious as your financial future, being presented with numerous routes can leave you in a quasi-state of mental paralysis. It is simply human nature that when we are overwhelmed with information we either avoid making a decision altogether or we make an impulsive, rash decision just to move on with our lives.
A skilled advisor is able to help you block out the noise, translate financial jargon, and use his or her professional experience to tailor a long-term financial roadmap specifically for you.
According to a 2017 American Psychological Association survey money is the second most common source of stress – higher than both work and health. What’s more, money-related stress is an epidemic afflicting not just lower income households: a 2010 Gallup study found that simply making a lot of money is not enough to keep people from worrying about it. Rather, the study concluded a lack of worry about money has more than twice the impact on overall well-being than having a high income alone, and financial security (i.e. the perception you have enough money) has three times the impact than salary.
Translation: money does not buy happiness.
An experienced, professional advisor should take the burden of financial management off your plate, helping to alleviate some of this anxiety.
Objective, fact-based advice.
As the old saying goes, “when emotion is high, logic is low”. All too often investors make decisions based on a feeling of what the market will do. But when it comes to your family’s financial future, a feeling shouldn’t be good enough.
It is generally best practice to strip away emotion and make objective decisions based on long-term principles when it comes to investing. Unfortunately, this is very hard for humans to do on a regular basis because money is a very emotional subject. As mere mortals, advisors are certainly not immune to such cognitive hindrances, but they are, however, able to use a blend of industry knowledge, professional experience, and cutting-edge technology to develop a disciplined game plan for your family. Advisors are able to take an independent, third-party view of your finances and give you honest feedback and solutions.
It’s not just about picking stocks. Skilled advisors do much, much more.
Beyond investing your money, a skilled advisor can add value in any number of ways including:
- Tax efficiency – keeping more of your hard-earned money by using tax laws to your advantage.
- Behavioral coaching – avoiding the pitfall of buying high and selling low.
- Asset selection – comparing costs of different investments and taking your risk tolerance into consideration.
- Estate planning – making sure your money goes where you want it to when you die
- Retirement budgeting – getting the most from Social Security and knowing how to tax-efficiently create income during retirement
- Risk management – protecting your family from the unexpected
Numbers don’t lie.
In a recent research paper entitled “Capital Sigma: The Return on Advice“, Envestnet Quantitative Research Group found that hiring a professional advisor can add up to 3.0% in value-add to investors’ returns. It’s not just Envestnet that came up with these numbers, either; similar studies from Morningstar and Vanguard also concluded advisors can add roughly 1.5% to 3% in value. This added value is derived primarily from an advisor’s skill in blending the six elements listed above, skills that are curated through years of educational training, industry knowledge, and professional experience in managing other peoples’ finances.
Beyond the numbers, partnering with the right advisor could mean less stress, anxiety, and more free time to pursue your passions. The quantitative and qualitative reasons are apparent. If you’re serious about building and protecting your wealth, make the smart decision and hire a professional.
At Taylor Hoffman, your objective is our passion. Learn more.
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