I was having a great discussion with a new client this week who is very inquisitive, intelligent, and had a lot of wonderful questions. At one point, we were talking about the many different types of firms one can hire to manage their retirement planning and investment management needs, comparing notes on costs and fees, and an old analogy from my earlier days managed to boil to the surface.
Before I move on, I have to apologize to my fellow nerds this week. Rather than writing about the stock market, technical indicators, and posting charts, I’m going to keep this week’s column super simple and down-to-earth. Don’t worry, I’ll be back with more “analysis” next week, but at least for now, the market isn’t doing anything all that interesting anyhow, and I thought this story could probably apply to many investors shopping around or getting a second opinion from another financial advisory firm.
Back to the analogy…
It’s been almost two decades now that I’ve been working with individuals, couples, and companies – helping them with their retirement planning, estate planning, insurance planning, portfolio management, and a plethora of other financially-related planning needs (college savings, disability insurance, long-term care, etc., etc.). One thing that we always bring up is the cost and value of the different services available to investors and all the different types of companies one can hire for this kind of thing.
It should go without saying that not all companies are created equal. Most insurance and annuity shops, home/auto insurance companies, and many brokerage firms do not implement comprehensive financial planning. However, there is no shortage of companies out there that will allow you to take the wheel and handle your own financial planning at a much, much lower cost.
At Libertas, we always say that it’s entirely possible to manage your own investment portfolio and financial plan. You just need to possess two things:
- You need to have the interest in the subject matter, and
- You need to commit to spending time on your plan and portfolio.
If you don’t enjoy the subject matter, you won’t spend the time on it…and if you don’t embark on the required time commitment to be successful, you won’t enjoy the results!
So again, I can’t reiterate, there are plenty of people out there who manage their own finances, enjoy the challenge, commit their time, and do it well.
Dalbar does a study every single year that compares the performance of the S&P 500 index vs. the average equity investors’ performance and the numbers don’t change much from year-to-year. I borrowed the following table from my friend Lance Roberts at Real Investment Advice. You can see the numbers for yourself:
Needless to say, the numbers aren’t stellar, but let’s be honest here. Most people don’t “beat the market.”
In the end, the question of whether to hire a financial professional such as a Fee-Only RIA firm (like us) or take the wheel yourself really comes down to one big question:
“If you were flying overseas, would you prefer a plane with or without a pilot at the yoke?”
Now, in this day and age, with technology, lane-departure warnings, automatic-parking, and even autonomous passenger vehicles, maybe you would rather just put your retirement into something that you manage yourself. Something that goes on “auto-pilot” for you without any help on takeoff or landing.
However, I think most people probably want that pilot – a professional financial adviser in this case – to help navigate, not only takeoff and landing, but the storms and turbulence along the way. After all, it’s those same weather patterns that cause the emotional triggers which result in the performance lag in the table above.
When it comes to your life savings and retirement planning, having a metaphorical pilot can help mitigate a lot of the stress and anxiety that comes along with handling large sums of money.
So as you’re traveling this summer, when you get on a plane, remember this analogy – and my guess is you’ll probably feel much safer knowing that your plane has a pilot at the yoke!
Till next time…
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* Adam Koos, CFP® is a CERTIFIED FINANCIAL PLANNERTM Professional, as well as president and portfolio manager at Libertas Wealth Management Group, Inc., a Fee-Only Registered Investment Advisory (RIA) firm, located in Columbus, Ohio.
The opinions mentioned in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial adviser and strongly consider interviewing a fee-only financial advisory firm, prior to investing. Past performance is not guarantee of future results. Economic forecasts set forth may not develop as predicted. The views and opinions expressed in this commentary are those of Adam D. Koos, CFP® and do not represent the views of TD Ameritrade Institutional and its affiliates. Investing involves risk including loss of principal.