Do You Need a Financial Advisor?
When You Don't Need An Advisor
I've spent all the time up until now telling you why you DO need an advisor. There is a reason for that. 99% of people who don't have an advisor don't have one for the wrong reasons. Even worse, 99% of the people who advise you not to have an advisor also do for the wrong reasons. They do it because there are too many advisors out there who aren't good competent experienced financial planners. So, they just tell you not to have one. That isn't the best idea, but it's easier than telling you how to find a good one. Still, there are people who don't need an advisor.
401(k) Only
If the only asset you have of any value besides your house is your 401(k) and you are still working for the company that your 401(k) is with, then you probably don't need an advisor.
Your 401(k) plan has a certain number of investment choices. If you have a great plan that is designed by someone that really knows what they are doing, then you might have enough fund choices to actually have to choose between funds. But, chances are this is not the case. Read about How to Allocate Your 401(k) Plan
So, once you've allocated your 401(k), what is an advisor going to do for you? Chances are if an advisor agrees to work with you in this scenario, he considers you a good investment because someday you'll rollover that 401(k), but he can't really do anything for you today.
Monthly Savings Only
Advisors love to work with people who will setup an automatic monthly savings plan. This is true for two reasons. One, nothing shows someone value like building up an account balance. If you save $500 a month, you'll have $6,000-ish at the end of the first year. A few years and you'll have $25,000 or more. This is the kind of thing that makes people refer their friends and family. The second reason is that you will probably be a low maintenance client who actually brings in a nice little revenue stream.
However, you really don't need an advisor at this stage. Once you've chosen your investment and setup the automatic investment (usually referred to as an ACH), there is nothing to do. Thanks to fund minimums and common sense, you only need one or maybe two mutual funds. Get a good one (or two) and let your money go in there and grow for a few years and then you can talk about diversifying.
Master of Your Own Finances
You may have noticed that the tough part of financial planning isn't the planning. It is emotions.
Ready for your financial plan? It's easy. Max out your 401(k) plan into a diversified portfolio. Do not change the portfolio except to rebalance once per year. If you have kids put $250 a month into a 529 plan. Use the aggressive age-based portfolio. Save everything else you can into a high interest money market account until you have a cash reserve. Easy, right?
Of course, the tough part is selling your Real Estate Fund in 2006 (but it's the only thing that keeps going up) and buying into Bonds (but they are going to go down because the Fed is raising interest rates). Of course, this December was just as tough. Did you sell some of your gangbusters International Fund (but China is huge) in order to buy into the Real Estate fund (but everyone is getting foreclosed).
I can't stress this enough. It isn't about what you know it is about what you do. What you do is not about knowledge it is about emotion. If you did the wrong things because of fear or greed (or whatever you tell yourself) in the late 1990s and again in the early 2000s and now are worried about the economy, you'll do it again. I promise you. Everyone says this time will be different. It almost never is, and you can't afford to keep making these mistakes. But, if you are a rock, keep reading. Learn how to invest and make a financial plan. Then do it, and stick to it, each and every year, do not change for the economy, for terrorist attacks, for wars, for global instability, for Wall Street news, not for anything, and you'll do fine.
How to Find a Good Financial Planner or Financial Advisor
Ok. Now if you are going to get a financial planner or a financial advisor, make sure you get the right one.
