March 20, 2014

Which is Best: Financial Advisors or DIY (Do It Yourself)?

Ah, if only life's important questions were so simple. Wouldn't we all like a simple, Door A or Door B, pick? Does the blog title hint at a clear cut answer? Has my almost 14 years of retirement provided me with insight on this perplexing issue?


Well, yes, and no. I do have some insight I will share. But, that insight doesn't come with an either-or choice. There are too many variables. Let me explain.

A qualified financial advisor can be a tremendous resource for you. That person should have the training and experience to understand all the choices you have to maximize your investments. He or she should understand your specific short and long term goals and your tolerance for risk.


While there may be an argument made for using a service that is not based on a fixed fee, personally I wouldn't feel comfortable knowing that the advisor's income is dependent on the commissions generated by what I end up buying. For me better is consulting with someone who charges a fee for his time and suggestions but not for everything you decide to purchase or do.


It would also be important for me to arrange for a situation where regular follow ups to check on the performance of my investments was part of the package. No one, no matter how good they may be, will always suggest things that work out exactly as planned. The world of money doesn't operate with precision. Something that seems perfect today may be wrong six months or a few years later. Having the ability to make adjustments is critical.

Do It Yourself


The flip side of this financial coin is the Do-It-Yourself approach. You know your goals and risk tolerance. By now you have the experience that tells you what investments and approaches have worked for you in the past, and which haven't. You may not know about the latest financial products and esoteric products, but that may be a good thing. Bernie Madoff proved that even seasoned professionals don't understand the ramifications of everything designed to separate you from your money.


The Internet is an amazing tool for staying educated about financial planning and investments. Of course, there is a lot of bad information available there, too. You will need to determine if what you are reading is legitimate. How? Check at least three or four completely separate sources. If all confirm each other, you probably are on safe ground.


Using the DIY approach could save you a lot of money that you can invest instead of giving it to a professional to tell you what to do. Fee-only planners usually charge a percentage of your total invested assets, or an hourly fee for their time.


So What have I done? I have chosen a mixture of the two. For almost twenty years I have teamed up with a financial advisor. Over those two decades he helped me build the financial foundation that allowed for early retirement and is keeping me feeling good about my future. In a slight departure from the caution I noted above, my planner is really a mixture of fee-based with some commissions involved. But, I trust him to not bring anything to me that is not a strong fit for my goals and personality. Because I am not an active trader he probably doesn't make much money having me as a client. At this point our relationship is closer to one of friendship and mutual trust.


At the same time I am actively involved in staying educated about the world of finance, adjusting my goals, and feeling comfortable about what appears on my balance sheet. I determine what percentage of my account I want to withdraw each year (presently less than 3%).


There are certainly a lot of people who are not comfortable in the financial world. The thought of making important decisions without guidance would be terrifying. That is completely understandable and that is where a good fee-only advisor can become your lifeline to a satisfying retirement.


But, the absolutely worst decision is turning over everything to someone else and simply trusting they have your best interests at heart. Almost as bad is to  figure what you put your money in all those years ago is still doing the job for you and ignore everything.


Note: The February/March AARP magazine has an article on Do it Yourself investing that provides an excellent overview of the DIY approach and the various tools that exist on the Internet. The article begins on page 50, or click here.



14 comments:

  1. Good issue. While a financial adviser may have more expertise, no one has your own interest more at heart than you do yourself. But to do it yourself you need two things: 1) knowledge of mathematics up to about the 10th grade level; and 2) the time and interest to do it. Many people have the first; not as many have the second. In any case, your solution may be the best ... a mixture of both.

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    1. It is interesting in how things change. Math was my least favorite subject in school. For some reason I just never got it. But, as I have gotten older I have found I enjoy using math to plot investments or project future financial needs. I assume the difference is that math has gone from being theoretical to practical. I "use" it to make my life better.

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  2. We sat down with a financial planner 15 years ago and discussed our goals and risk tolerance. She has guided us ever since, and we reached our goals.

    I still keep a close eye on things, though.

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    1. It has worked for you: trust coupled with diligence.

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  3. We practice the diy method at our house, but as Tom (above) says: it takes a lot of time and many people are not willing to spend as much as needed. My husband has an MBA so has had more financial training than many. He spends about an hour on the internet each day watching the market and the financial trends as well as current events that may affect the markets. When considering an investment, he spends many more hours doing his research before we invest. Yes, there have been mistakes along the way - nobody has a perfect record. But, we personally feel more comfortable with all control in our own hands.

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    1. It does take time and dedication to stay on top of things. The market is ruled as much by emotion, fear, and greed as formulas and logic. Even so, there are basics of smart investing that work. You guys are lucky to have that type of training to call upon.

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  4. For many years I managed our retirement accounts. But I didn't really enjoy it, and finally decided to spend my time and energy on making more money by better managing my business.

    So on my accountant's advice, we went with a fee-based adviser. Glad we did, too, for when the market tanked he had us in a much better position that we might have been. He provides the management, and we track the results monthly on a spread sheet. We meet a couple of time a year to review.

    We consider him a trusted adviser, just like an accountant or doctor. I wouldn't even consider taking out my own appendix, so why not use a professional to manage my money? If you don't enjoy it and/or feel capable, better to find someone you trust.

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    1. All good points, Daryl. I feel the same way about the fellow I have worked with for all these years. In fact, our retirement accounts have a higher balance than when we started taking out money about 14 months ago. he continues to do a great job.

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  5. We use a fee based financial advisor, and have for many years. It's important to understand your tolerance for risk, and good financial advisors will make sure to help you with this assessment. The decision to retire and to start withdrawing from your investments is huge! My husband and I are both fairly savvy when it comes to finances. In spite of that, we knew that we wanted to get the expert opinion of someone who does this every day for a living.

    What he confirmed was that yes, we had saved enough to retire comfortably. His fancy schmancy software program provided a strategy that uniquely fit our situation, optimizing the timing of our social security. It also provided the probability of success, giving both the average return, as well as the "bad timing" scenario. There is no way we could have figured that out ourselves. The printed report is amazing. It includes a retirement distribution cash flow chart, including expected taxes. I'm a numbers person, so I love this kind of stuff.

    Their consultation fee is tax deductible. For peace of mind for some of the most important decisions of your life, I highly recommend hiring a financial planner.

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    1. Next time you meet ask him to share his software program on this blog! Wouldn't that be a special treat. It sounds fabulous. My guy doesn't provide such a detailed report but it sounds quite helpful.

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  6. While I understand the need for an adviser by many, I always always been in the DIY camp. I do have a love for investing and enjoy the math part of it as well. I am happy with how it has gone so far since without the need to educate myself, I would certainly be less knowledgeable than I currently am.

    Question for you, Bob - where you in the 3%< withdrawal camp throughout your retirement, or were you at a higher % before signing up for SS?

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    1. I didn't start taking money from my IRA until 2012. Prior to that I had another savings account that funded my first 11 years of retirement. The first year it was about a 4.5% draw down. Last year it dropped to 4% and now with full SS it is just below 3%.

      Good question.

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  7. I stumbled on your website by accident. I am now an avid follower. I am approximately one year out from retirement. I just turned 60 in February. On paper I can retire at 61.

    I especially like your blog and followers posts on what you did on your first day and first week of retirement. Would love to read more from the 10,000 per day retiring.

    I sometimes wonder if I can hold out another 11 months. I can't wait to be totally bored, at least for the first several months of retirement.

    I truly enjoy reading both you and your followers posts. I feel I am joining a thoughtful, experienced and well balanced club of people. The baby boomers really are the greatest generation

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    1. Thank you and welcome. I really do feel the regular readers and commenters are like a family that care about and support each other.

      If you can't wait another 11 months to retire, I am sure many of us would understand!

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