If you had asked me this question last week, I would have answered emphatically NO! This week, I have a better appreciation. Here’s why.
My Story
If you’ve read my posts, you know that finance is a hobby for me. I’ve taught classes, I read about companies on my own for fun (seriously). I like to find and invest in companies that I believe will beat the S&P 500.
I’ve also always believed that most folks can do pretty well with a few low-cost index funds. A good portfolio has an appropriate mix of equity, fixed income and cash. This can be achieved with a handful of funds. Read more here, here, and here.
Rich’s Story
However, we all have different interests, and emotions. While this is fun for me, I need to realize it is not so fun for others. Coffee Rich is one of those folks.
A few years ago, Rich hired a financial advisor. Occasionally we chat about this, but Rich and I have been friends for 40 years, and I suspect this may be related to the fact that we rarely discuss politics or finance.
So last week, Rich was telling me that he had his meeting with his financial advisor and Rich asked him if he should have a higher allocation to equity. Rich is 65, and is invested almost entirely in fixed income. His wife’s portfolio is invested a little more aggressively.
Rich’s advisor responded that he would do whatever Rich asked, but he would need Rich to sign a document authorizing the change in allocation. Why? Because he knows the higher equity allocation would cause Rich to watch CNBC from market open to close every day. Rich would be a wreck. Rich and his wife laughed and agreed.
Emotion
I’ve written a lot about emotion. Just last week I wrote a post about how I had the same thought Rich did. Read more here. It’s a quick read but describes how, with the market on fire, I was considering (briefly) changing my allocation strategy to put more money into equities.
While we like to think we are rational people, most of us are highly influenced by our emotions.
If we recognize that we’re highly susceptible to acting on our emotions, an advisor may be a good fit for us.
Golf Analogy
Thinking about this situation made me think about golf. Recently, my game has been in the toilet. I had been playing quite well earlier in the year, but then the wheels came off the bus. And as everyone knows, whether it is golf, other sports, investing… once you lose confidence and start questioning yourself, you’re in trouble.
Well that’s what happened to me. I thought I should change my grip, my stance, turn more, lean the shaft forward at impact, keep my left arm straight. These are all good things to do, but try doing all of them on every swing. Guess how well this worked.
I decided to go for a golf lesson. My teacher, a young lady named Morgan, watched 3 swings and said “OK, this is what we’re going to do…” She said we’re going to work on a shorter 3/4 swing. 1 thing.
I asked about my grip, my stance, my weight shift, my club angle… She said they were all perfect, just focus on 3/4 swing.
Wrap-Up
I feel like I need to tie that analogy together because it may be a bit loose. Whether it is golf or investing, it is easy to get overwhelmed. That’s when emotion kicks in. We get scared, nervous, unsure. We’re no longer confident. We question our abilities. We read too much. We try too many different things.
When we’re in this situation, we need professional help. Thanks to my 1 focus area for golf, I shot a 37 for nine last week. Prior to that, I was struggling to break 45. Rich’s advisor keeps him focused on his goal and addresses his financial needs as well as his emotional needs.
So while I think people can manage their own investments, maybe not everyone should. A financial advisor could be right for you.
Before you sign, make sure you understand how your advisor gets paid, and make sure you check them out on the FINRA website to make sure they are legit.