Ask Stacy: Do I Need a Financial Adviser, or Can I Manage My Money Myself?

Ask Stacy: Do I Need a Financial Adviser, or Can I Manage My Money Myself?

When you’re sick, you go to the doctor. When your car dies, you find a mechanic. But when it comes to your money, do you really need a financial adviser, or can you do it yourself?

Here’s this week’s question:

Do I really need a financial adviser to handle my money, or will I do just fine in a low fee Vanguard [mutual fund] or something similar?
— Robert

Before we get to Robert’s question, here’s a video we shot a while back at the New York Stock Exchange.

Now, on to Robert’s question.

Going it alone: penny wise, pound foolish?

Every year we cover income taxes, and every year, in stories such as “7 Tips to Find the Best Tax Pro,” we offer advice like this:

Remember, most preparers are simply entering your information into a software program. Rather than pay hundreds to someone else, you could spend a lot less and … do it yourself.

The same logic applies to managing your money. Money management isn’t rocket science. In fact, I’d consider it more basic than income taxes. Providing you’re willing to do a little reading, you can easily do it yourself. For example, let’s look at Robert’s case. Here’s what he might consider:

  • Step one: Decide how much he can put into long-term savings. Long-term means money he definitely, positively won’t need for at least five years.
  • Step two: Subtract his age from 100 and put the result as a percentage of his long-term savings into a simple, unmanaged stock index fund. So if he were 40, he’d put 60 percent (100 minus 40) of his savings into a fund such as the Vanguard 500 Index Fund or 500 Index ETF. (I typically suggest Vanguard because they’re low-cost. I have no affiliation with them.)
  • Step three: Take the remainder of his long-term savings, 40 percent, and divide it equally. Leave half in an interest-bearing, risk-free savings account, put the other half into a bond mutual fund, such as the Vanguard Intermediate-Term Bond Index Fund, or an ETF.

He’s done. No pro needed.

If Robert is concerned about putting too much into stocks, especially all at once, he could invest gradually over time. If he feels that investing 60 percent of his long-term savings into stocks is too risky, he could choose to invest less. And if he’s confused by terms such as “500 Index,” “bonds” and “ETF,” he should read more.

Bottom line? Robert, and most other investors, can safely go it alone, provided they’re willing to do a modest amount of reading and research.

That said, there may come a time when anyone might consider seeking the services of a professional. Perhaps the amount of money involved is large enough to be intimidating, the options so complex you feel out of your depth, or you just want confirmation you’re on the right track.

Fine. There’s certainly nothing wrong with turning to a pro. There is, however, something that can go wrong if you turn to the wrong kind of pro. So let’s explore how to find the right kind.

What’s in a name?

In a past life, I worked as a financial adviser for several big Wall Street investment houses. While I called myself a stockbroker back then, those in the advice business these days rarely do. Instead, they use titles they presumably hope will convey trust: financial analyst, financial adviser, financial consultant, financial planner, investment consultant and wealth manager, among others.

When it comes to quality advice, these are all interchangeable labels. None requires any specific education, skill or certification. In fact, your barber probably has stricter licensing requirements than are needed to call yourself almost any kind of financial adviser or consultant.

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