We all need a coach. In school our teachers and coaches taught us what we didn't know, but also they pushed us further than we wanted to go, whether doing homework or laps around the gym. Some were more effective than others, but we would all admit that we would not be where we are today without our teachers and coaches.
But in the realm of personal finance we struggle. Some insist to go their own way. What could happen: 1) huge financial mistake, 2) lost opportunities which add up to thousands over a lifetime, or 3) no major financial impact but the loss of a second set of eyes with different perspective.
Others don't really understand much about personal finance, and there are also ramifications: 1) the advisor charges too much money and doesn't deliver returns but excuses, 2) the advisor charges a lot but delivers good returns, 3) the investor blindly follows advice and doesn't personally verify the information. This is a passive approach which carries risks also.
We advocate for a middle approach.
There is no way that any working person can learn as much as an advisor and stay on top of all the current developments in money management. We have work, families, life events, and limitations on our time and energy. A good balance is to invest a moderate amount of time learning but also reach out for professional help for additional guidance.
Most of us would research a health condition, form our own opinion, but also consult a doctor. It's a similar idea. You really need to know only a few basics.
Here are some suggestions:
1. Determine what you want to achieve. No one can deliver returns that beat the market over time, no matter how nice the office or how professional the marketing materials.
2. Don't believe everything you hear. Use the same level of healthy skepticism as you would with any other vendor.
3. Understand how your advisor is compensated. Nothing is free. It's fair that your advisor is paid, but you need to know how.
4. Opt for a fee-per-hour rather than a percentage of assets. This will minimize your costs as your assets grow.
5. Don't be swayed by technical terms. A good advisor, just like a good teacher, will explain complex ideas to you in terms you can understand.
The tricky part is to think of personal finance just like any other area of life. There is no secret formula, and if something sounds too good to be true, it probably is. A reputable company is safer than a new company. Never start talking to someone who calls you unless you requested it.
But if you did sports in high school and your team had some success, you were happy after the win, but you may not have been happy running those laps. But in the end it was worth it.
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Disclaimer: The views expressed on this website reflect the personal opinions and experiences of the writer. Nothing in this article constitutes financial advice in any way. Information on this website should not be relied upon for investment or business advice. Please consult with a qualified financial professional before making any financial decisions. 3800936