Whenever you learn a new skill in life, you need to hire a teacher or an instructor to guide you through the process. Whether you are learning to cook, ski, surf, or play a musical instrument, watching online videos or reading books can only take you a little further in your journey to learn that skill. However, a real difference in your understanding and knowledge can come from an experienced teacher. A teacher or guide can offer you a glimpse into the little details and nuances that make a big difference in your learning process. When it comes to managing your finances, a financial advisor does exactly the same.
If the question “Do I need a financial advisor?” lingers in your head quite often, the answer is most likely a yes in most situations. Investing is the foundation of a financially secure and stable life. Most people create their wealth through their investments and not their jobs. Regardless of how much salary you draw each month, your financial habits decide your wealth and financial status. Saving, investing, budgeting, being tax-efficient, etc., are some habits that can lead to financial freedom.
Unfortunately, none of these things are taught in schools or colleges. A majority of people pick saving or investing habits and knowledge from their parents. If you grew up watching financially aware and disciplined parents, creating budgets and investing and saving their money conscientiously, you would likely have the same level of financial discipline or at least an understanding of how important being financially aware is. However, if money was never the topic of discussion in your house or family, you may find yourself in a whirlpool of unknown financial jargons when you finally step outside of your home. In either case, hiring a financial advisor can help you. This article focuses on how financial advisors add value to clients and how you can find one for your unique financial needs.
A financial advisor can do a lot of things. As mentioned above, most people are not taught to invest in schools, colleges, or at home. Therefore, DIY investors or Do It Yourself investors rely on advice from friends, peers, and colleagues most of the time. With the advent of social media, people these days also consult online videos, blogs, e-books, etc., for investing advice. All of these things can be helpful but only to a certain extent. A general blog or video aimed at millions of people cannot be used as personalized advice. These sources of information are helpful when you are making general investing decisions or learning the basics of financial discipline. But they are not useful in individual situations. For instance, if you are struggling with accumulating debt, falling short on your retirement goals, and facing a financial emergency at the same time, your situation would require personalized attention and measures that can get you out of it. This kind of value can be added by a financial advisor. Moreover, since the internet is often considered a combination of a boon and a bane, you cannot fully rely on it for your future financial security. It is hard to distinguish false information from accurate information, especially when you are a beginner. If you base your financial plan on incorrect or biased data, you would not be able to seek the kind of financial freedom you truly want. Therefore, hiring a financial advisor can be a sensible thing to do.
If you are wondering how financial advisors add value to clients, here are some ways in which a financial professional can help:
Financial advisors also reduce risk by diversification measures. Diversification refers to distributing risk across sectors by not putting all your eggs in one basket. It helps you lower risk and volatility and increases exposure to multiple growth opportunities. For instance, diversification across three industries – aviation, pharmaceuticals, and gold can be a good strategy. In 2020, the aviation industry crashed even though it was booming before. However, pharmaceuticals picked up sales due to an increase in demand. Gold, on the other hand, remained stable and consistently increased in value even amid economic turbulence. This is just one example, but hiring a financial advisor can ensure diversification in numerous other ways depending on the trending geopolitical conditions and the environment of the market.
Similarly, you may lose your job and may have to alter the pace of your goals. In some cases, a major business loss can also stall your progress. Such events and circumstances require immediate remedial measures. A professional piece of advice can control the damage and provide a way out. Hiring a financial advisor can enable you to always be financially secure, irrespective of your personal or professional situation.
Here’s an example: A major difference between Roth and traditional retirement accounts lies in their tax treatment, and a lot of people do not know this. In a Roth account, your withdrawals are tax free after the age of 59½. Moreover, the contributions are made from after tax dollars. However, in a traditional account, the contributions are made from pre tax dollars. So, your money grows tax deferred and is taxed when you withdraw it in retirement. Now, if your income is expected to be more in retirement than right now, a traditional account could be a better pick. However, if your tax liabilities are higher in the present scenario than you foresee in the future, you could benefit more from a Roth account. While you may or may not have the foresight to ascertain the right pick, a professional financial advisor would be better equipped to make a suitable suggestion.
Hiring a financial advisor can also help you save other types of taxes. There are many strategies like tax loss harvesting, gifting an estate instead of transferring it, planning withdrawals efficiently, using tax credits and exemptions, and more. The laws surrounding income tax, estate tax, state tax, etc., change often. It can be hard for you to stay up to date with these changes and newer policies. However, a professional financial advisor would always be more well-informed and can help you use these strategies to lower your tax liability legally.
Now that you know how financial advisors add value to clients, the next step is to know how to hire one. It can be overwhelming and perplexing to hire someone you do not know to manage your money. The fear is a common factor with most investors beginning their investing journeys. However, there are some ways in which you can ensure that you hire someone worthy and suitable:
Hiring a financial advisor can add great value to your financial planning routine and help you take advantage of the right opportunities at the right time. It can help you streamline your finances and make better decisions that can benefit you in the long run. It can also help you discard problematic behaviors that hamper your financial growth and instead incorporate lifestyle changes that promote your financial growth. Working with a financial advisor can be great for new as well as experienced investors. So, regardless of where you stand or what your concern or goal is, you can consult with a professional financial advisor and get suitable guidance.
To get in touch with a qualified financial advisor, use Wiser Advisor’s free matching tool. Our free advisor tool connects you with 1-3 background-verified financial fiduciaries. You may also set up a free initial consultation with them before deciding to hire one.
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