(This is a guest post written by ABCs of Investing, a brand new site for novice investors which offers two short and simple investing posts per week. Feel free to subscribe to the feed.)
The majority of investors use a financial advisor or broker to help with their investing planning. There is nothing wrong with getting some help with investing since it is a fairly intimidating subject. Most people just don't have the time or the interest to read investment books and become knowledgeable enough to be able to handle all of their own investments. Do-it-yourself investors forget how much time they have put into learning about finances and think that investing is easier than it really is.
The great thing about investing is you don't have to choose between being an expert DIYer or a clueless investor who needs an advisor. You can hire professional help AND know what you are doing at the same time!
A few years ago I bought a basic electrical book. It showed how to do electrical repair jobs and even how to plan various circuits in a house. One of the things that I found most interesting about the book was in the introduction; it said that learning the basics of your electrical system is useful whether you do the work yourself or hire someone else. The point was that even if you end up hiring a contractor to complete your electrical work, any knowledge you have about the electrical system in your house and how it works will assist you greatly. The same logic applies to investing: the more investment knowledge you have when dealing with an advisor, the better off you will be. It is worthwhile to spend a bit of time learning about investing.
There are number of areas where some investing knowledge will help if you have an advisor:
- It won't be as easy for the advisor to take advantage of you. Let's face it: some financial advisors, like real estate agents, make money on commission, and unscrupulous ones can rob you blind if you let them. Knowledge about proper investments and for that matter knowledge about how advisors make their money will help you a lot.
- You'll have more productive advisor/client meetings. Usually when a client visits or talks with their advisor, the advisor is telling them what to buy. If you can spend some time before meetings looking over your portfolio then you can drive the meeting agenda and make sure that your questions get answered.
- You'll know better what you want from your advisor. A lot of investors just hand over the financial reins to their advisor and just do whatever they are told. If you have some investment knowledge then you will be in a lot better shape to determine what you want from the advisor, communicate your desires to them and make sure that they are the right advisor for you.
The single best way to learn about investing is to read. Read, read and then read some more. Books, blogs, websites, newspapers are all sources of information. Talking with friends, relatives, co-workers can also be helpful. But beware, all the “good” ways to learn about investing can unfortunately also be “bad” ways to learn about investing. The best way to protect yourself is to read as much as you can and eventually you will be able to figure out where the good information sources are.
Knowledge is power! Make sure you have as much as possible when dealing with your advisor. Even a little bit of knowledge is a lot better than none at all.
(Photo credit: net efekt)
Very true. Learning the "basics" of any field, including financial planning, aren't too entirely difficult. The ROI of the time spent in learning financial planning can't be overstated.
Knowledge is power, to use the cliche. 🙂
I just discovered your blog today and I really like it.
Use a fee-only financial planner who charges for time only.
You can find one in your area through the Financial Planning Association or the Garrett Planning Network. Both have educational resources that can help an investor ask the right questions and find the most suitable planner.
The vast majority of financial advisors/planners aren't out to get you, but that's not to say that there are none like that. Find a trusted family friend or someone similar to do your finance business, similar to a mechanic.
Yes, there is no way you can know everything about investing, taxes, estate planning, insurance, etc, but it is helpful to have a basic idea. Your financial advisor has resources to help with everything you don't know. I would add one comment about actually finding the right advisor also, it helps to use someone who has experience working with other people in your specific situation. My company (ClaroConnect) matches people to specialized financial advisors like this who focus on divorced women, business owners, socially responsible investing, and hundreds of other specialties.
So, true.
A friend of mine recently got rid of his financial planner because it was clear he wasn't preparing for meetings and in turn, wasn't spending any time on his portfolio.
By asking the right questions, he was able to decide for himself that the guy needed to go.
Great post. Usually people have an agenda…especially those with something to sell. Whether it is their financial agenda or whatever. Being educated is the best weapon!
And what's more-never late to learn-especially in the time of a fall,you may master something new.
Great post, I totally agree that in some cases you need financial advisor, so people who don’t know the importance of advisor will get good information from this post.
You are right you don’t need to pay big bucks for an advisor, but it is important to know what you are doing before you do it on your own. I wpend a great dealof my time helping DIYers who blew it.