Dallas County Living Well Magazine November/December 2016 | Page 44

The True Value of a Financial Advisor By Gary Brancaleone CFP®, CRPC® F inancial advisors don’t work for free, but their true value can far exceed the fees they charge when investors select them wisely. An advisor’s experience and expertise may actually help you make more money in the long run compared to self-managing your portfolio and other aspects of your personal finances. KEEP YOU ON TRACK THROUGH PERIODS OF MARKET VOLATILITY A financial advisor can keep you on track throughout all market conditions, which is especially important during periods of market volatility. Investing is emotional. Bull markets are exhilarating, while recessions and volatile periods can cause huge amounts of stress (just think about 2008). Loss is painful, so it makes sense that during times of market loss, recession, and other turmoil that an investor’s instinct may be to go to safety––that is, to sell out of the market and go to cash after declines have already occurred. However, selling out of the market during a downtown can have damaging long-term consequences on your portfolio. There are transaction costs and broker fees associated with selling out and buying back in to the market, and both rounds of costs would have been avoided by holding your investments. Furthermore: when do you buy back in? If you sold your investment holdings after the October 2008 crash, it’s likely you weren’t back in the market before February 2009, which means you missed the five best postcrash market days. The figure below demonstrates how significantly missing the top market days can affect your long-term gains. The findings are eye-opening: Self-managed investors are much more likely than those who work with a financial advisor to react to emotional, short-term market volatility, rather than to hold their investments and keep focused on their long-term plan. Those short-term reactions can have negative longterm effects on your portfolio. BEING A FINANCIAL ADVISOR IS A FULL-TIME JOB Financial advisors dramatically reduce your workload. The investment universe is vast, and the possibilities for your portfolio are practically infinite when you consider all the combinations of holdings, asset allocations, and diversification available. It takes a significant amount of time to research, develop, weigh, and monitor an investment portfolio. That’s why being a financial advisor is a fulltime occupation––it takes that much time and effort to fully 42 DALLAS COUNTY Living Well Magazine | NOVEMBER/DECEMBER 2016 understand and stay up to date on the market, monitor it, and know when it’s appropriate to rebalance the portfolio or to invest in a new holding. The requirements for staying on top of your portfolio can quickly become burdensome if you’re managing it yourself. Investment success shrinks when you consider the opportunity cost of maintaining a portfolio yourself (lots of time spent on it) versus having a financial advisor do it consistently for you. This allows you to dedicate your time to that which matters most in your life. A FINANCIAL ADVISOR PROVIDES DISCIPLINE AND EXPERTISE Financial advisors also provide discipline. Selfmanaged investors risk falling into one of the two discipline extremes––being too disciplined, or not disciplined enough. Overly disciplined self-managed investors risk “analysis paralysis,” in which they become concerned that their portfolio isn’t as good as it could be, research endlessly and never actually make appropriate changes to their portfolios. At the other extreme, self-managed investors who lack discipline aren’t likely to monitor their portfolio or take action to maintain a proper asset allocation and appropriate level of risk for their situation. In both cases, investors are likely taking undue risks which can be mitigated with the assistance of a financial advisor, who can help avoid missing key rebalancing and buying opportunities. In addition to the discipline it takes to navi gate investment markets, substantial knowledge and expertise is important. Financial advisors can devote years to becoming properly trained, earning credentials such as Certified Financial Planner™ (CFP®) or Chartered Financial Analyst (CFA®). These designations involve extensive training and testing. Other financial advisor designations include the Accredited Investment Fiduciary (AIF®) and the Chartered Retirement Planning Counselor (CRPC®). By working with a trusted and credentialed financial advisor, you can reduce your workload while ensuring that the professional advising you is qualified to do so. And don’t forget the big picture. Is anyone serving as the financial quarterback in your life? Beyond your investment portfolio, has anyone reviewed your insurance coverage, estate plan, tax situation, and other important areas of your personal finances? A lack of objective guidance and expertise can become time-consuming and lead to costly mistakes in all of these areas without the discipline of a financial advisor helping you along the way.