On the Finance Gourmet website, the first part of our latest article has been posted. It covers that tough topic of whether or not you need a financial advisor or financial planner. It is unbiased, and subsequent sections will give you all the details you never got so you won’t have to ask the question again.
Want the one question quiz?
1) What are you doing right now to protect your retirement portfolio from the coming recession, and what did you do last time to protect if from the falling housing market and the sub-prime mortgage crisis?
Write it down. Seriously. You are only cheating yourself if you don’t. Writing it down will help you make a fair analysis.
The answer on the next page will let you know if you need a financial advisor or financial planner.
The Answer:
Was your answer: “Nothing, because my portfolio is setup with a properly diversified allocation based on my risk tolerance and time frame, so all I have to do is re-balance it one a year.”
Yes, and I know what everything in that sentence means. Congratulations, you are a calm, rational, educated investor. There is no need to pay someone to tell you what you already know.
No? Then you need a financial advisor or financial planner. Chances are you’ve nodded your head along with a book or web site in the not too distant past as you read about how you need to build a diversified portfolio. You maybe used an Internet calculator to figure out what your allocation should be. Then, you used Morningstar or other resources to pick the best no-load mutual funds with the lowest expenses. Then, you told everyone how you didn’t need an advisor because it is dumb to pay someone for what you can do yourself online. The only thing is, when you moved your money out of your REIT fund in 2007 you sold low. When you put the money into your five-star international fund because it was doing so well, you bought high. Oops. It’s supposed to be the other way around.
If you didn’t buy the lowest performing funds in your portfolio with money you got from selling the highest performing funds in your portfolio in the last 12 months, then you didn’t re-balance your portfolio. What you did is what people always do. You tried to time the market. You didn’t call it that of course. Moving out of bonds when the Fed raises rates is smart. Getting out of REITs when the housing market goes down just makes good sense. And, now, whatever you are doing to avoid the recession (probably moving to higher quality dividend paying stocks) is just you being savvy enough to manage your own money.
Only, it isn’t. It is market timing. Just re-phrase the statements above and you’ll seed market timing, market timing, market timing.
Selling REITs because the housing market is slumping = REITs will go down, so I will sell first (too bad they are already down — if you re-balanced at the end of 2006 like you should have you would have sold before they started going down — if you sold in mid-2007 they were already down over 20%).
Moving out of bonds when the Fed raises rates (prices of bonds move in the opposite direction of rates) = bond prices are going down, I’m going to sell first. Heard of the inverted yield curve? Bond prices are at all-time lows. Know any successful investors who sell low?
Today, moving to high quality dividend paying stocks because they won’t be hurt as much in the recession = non-dividend paying stocks are going to go down so sell before they do.
(Yes, you get a pass on the question if you have less than 5 years to retirement, because this doesn’t apply to you as much, but read the full article to see about your needs.)
There is more to it of course. Go read the first installment now. Subscribe to our feeds and read the next section.