DIY Wealth Building and Financial Planning: Being Your Own Financial Advisor A Good Idea?
For too long, too many people have handed over responsibility for their investment decisions almost entirely to their financial advisers. This is a bad idea. No one is going to manage their own money as well as you could. The way I see it, anything you can do to create a better life for yourself and your dependents is fair game. Therefore, acquiring financial literacy and reducing any excessive reliance on financial advisers is part of this overall goal.
Gaining financial literacy not only empowers you and your finances, it also sets a really good and much-needed example for those around you. In my opinion, “Becoming 100% Financially Savvy” is something that deserves to be on every major life goal list.
There is no such thing as a free lunch
Have you ever wondered how your financial advisor was paid? He probably had a suspicion that some financial institution was greasing his palm. Well, as the saying goes, there really is no such thing as a free lunch. Beneath the pinstripe is the thinly disguised fee and commission structure that has rotted the financial services industry to the core.
Even now, with heavily regulated financial institutions and the responsibility of your financial advisor to disclose to you the commissions and fees they receive for a transaction, this can still result in you feeling uncomfortable and cautious, leaving you with distinctive bad taste in your business. mouth.
After the recent global financial meltdown, there is a big question mark about the validity, integrity, and over-systemic reliance on the financial services industry. Rather than being required to put your financial interests before yours and create the best financial plan for you, financial advisers are only required by law not to sell you something that is completely inappropriate. This, combined with the need to make money, can sometimes mean that your best interests are not always at heart. As this article will show, there has never been a more conducive time to gain financial literacy and embark on the process of becoming your own financial advisor.
Many financial service providers focus on a) commissions or b) service fees. In turn, they impart some regular financial advice and offer average returns on investment. Commission-based “financial advisers” work for the fees paid by a brokerage company, a mutual fund company, an insurance company, and so on. Fee-charging financial advisers are selling their skills and time for an hourly rate or à la carte.
Of the two distinct approaches, fee-based financial advice is the lesser of two evils, so to speak. However, on-demand services may be best suited for a small investor. This is particularly true for a smaller investment portfolio where less active management is required. In this case, paying the occasional commission probably won’t ruin your portfolio’s returns in the long run.
Many financial advisers are now what they call “fee-based” (that is, they make their living from fees paid by you and commissions). True financial payment planners are still a rare breed. Unfortunately, a very high percentage of financial planners are not working for you, but are essentially salespeople for financial institutions whipping financial products for fees. They, consciously or unconsciously, will tend to sell you a product that pays them the highest commission. So often their schedule and yours are completely different.
Ponies from a trick product
Often the only product (s) a financial advisor understands is the one they are selling. An insurance agent will enthusiastically promote insurance products, while your broker will push individual stocks or a basket of stocks. In both cases, neither of you may be aware of your full financial situation and therefore may not be able to provide you with advice. The best use of your money at that time might be to reduce your debts or create an emergency fund.
Good financial planning isn’t so much about trying to beat the market as it is about multiplying your wealth. It’s really about making sure your portfolio is well diversified and that other aspects of your finances – budgeting, credit scores, insurance coverage, tax planning, estate planning, and retirement accounts – are in the best shape possible. Therefore, proper financial planning encompasses more than investments. It should also allow you to protect your assets, minimize your taxes, and take care of your dependents, etc., while increasing your wealth over time.
Your average commission-based financial advisor is unlikely to think about the big financial picture. On the other hand, fee-only financial advisers are likely to be more objective when analyzing entire portfolios.
When to get professional advice
If you are going to do DIY financial planning, then you will need time, education, experience, objectivity, and the inclination to achieve the same level of competence that many professionals offer. To be honest, very few midsize investors have the ability to become their own financial advisers. They just don’t have that inclination and are too busy with their daily life. Therefore, you must be brutally honest with yourself about the level of financial education you have when creating and implementing your financial plans. You can’t afford to hit above your weight, make costly mistakes, and possibly take a financial hit!
So while I think it’s a great idea to live to become your own financial advisor, I think it’s important to point out that I also think it’s crucial to have a team of Grade A financial professionals (financial / tax / legal experts) in place. who you can turn to for critical advice.
There are times when you will need a second opinion with more experience than your DIY financial counseling skills may be able to provide. Here are some examples of when it helps to get professional advice:
- When you are moving from one stage of life to another (getting married, having children, retiring, divorcing, etc.)
- Any major financial transaction such as the purchase of a property, the purchase or sale of a business, the receipt of an inheritance, etc.
- When you are in a financial stalemate or suffer from inertia and are not clear on what to do next.
- When you are looking for the best way to protect your family in the event of accident, illness or death;
- In times of great economic and market changes.
Conclution:
Acquiring financial literacy will require that you become familiar with the financial requirements / constraints you have and the strategies, tools, and techniques you will need to achieve your goals. As you delve into the complexity of DIY financial planning and building wealth, you’ll quickly realize why it’s a full-time occupation even for an average financial planner. The question is whether you want to become an expert, or whether you prefer to pass this financial responsibility on to someone else … someone else who may or may not consider what is best for you. Either way, this is a decision that should not be taken lightly.
