Investing for Life: Do you need a financial planner?

Financial advisors like to compare themselves to doctors when pitching their services to consumers– “You wouldn’t operate on yourself would you?’  

It’s the wrong analogy, says personal finance expert Chuck Jaffe, author of the "Right Way to Hire Financial Help." The better comparison would be to hiring a plumber or an auto mechanic, he says. In reality, it doesn’t require an advanced degree and years of specialized training to manage your own money.  It just requires skill.

“There are magazines and YouTube videos. You could watch Bob Vila and learn how to fix your plumbing yourself,” Jaffe said. “But if you mess up and there’s water running down your walls and ruining your hardwood floors, you’re jeopardizing one of your biggest investments.”

So the right question to ask when considering whether to hire financial help isn't “can I do it myself?” -- you can, Jaffe affirms. The question is whether you have the time, interest and talent to do it well.

Not sure? A little self-knowledge can go a long way toward assessing if you could use an assist in managing your money. Start by answering these 10 questions (honestly) with a simple yes or no:

1.  I have a good grasp on my budget and cash flow, meaning that I am always prepared to pay regular bills – even the big annual or semi-annual ones such as car insurance or property taxes – when they’re due.

2.  I have contemplated the sort of savings I’d need to handle likely emergencies and either have that money set aside or am in the process of methodically saving it.

3.  I know what I can and can’t afford

4.  I have a handle on retirement savings and feel fairly confident that I’m on track. (There’s no shame in using web-based calculators to help with the math.)

5.  I understand investing basics and feel comfortable assembling a diversified portfolio myself.

6.  I am willing and able to monitor my accounts on a regular basis and evaluate how my investment performance compares to the market as a whole.

7.  I understand how different types of investments react in different economic conditions. (For instance, I know that when interest rates rise, the value of my bond fund is likely to drop; I know that stocks are likely to slump in recessions and rise in economic recoveries.)

8.  I have considered whether I need disability and/or life insurance coverage and have purchased it, if I do.

9.  I’m able to withstand bad stretches in the financial markets without resorting to panic selling or abandoning my long-term financial plan.

10. I’m comfortable with money and my ability to handle it.

If you answered “no” to any of these questions, you may need help. What kind of help -- and whether you can get that help for free -- will depend on where you ran into those “no” responses.

For instance, if your only issues are with questions 1 through 3, you probably just need some budgeting assistance. Non-profit credit counseling offices will provide this assistance for free or a nominal ($25 or less) fee. The National Foundation for Credit Counseling offers a toll-free referral line at 800-388-2227.

If questions 4 through 7 tripped you up, you might simply need a book or a good website to help you learn more about investing. There are nearly endless options. The top mutual fund companies – Vanguard, Fidelity and T.Rowe Price –all offer excellent primers on their websites. Look under “education” or “insights.” Books ranging from Alex Frey’s "A Beginner’s Guide to Investing" (or my own "Investing 101") can help with figuring out how much you need to save and how to diversify your portfolio.

If you need more assistance – but not so much more that you feel the need to hire a financial planner – there are also subscription services, such as FinancialEngines, that will evaluate the funds in your portfolio and provide specific investment advice for a fee ranging from $150 to $300. (Many big companies subsidize the service for their employees.)

However, if you had trouble with the final three questions in this quiz, you need someone to hold your hand, help manage the risk in your life and hit the brakes when you’re about to make a big investing mistake. You’d be wise to hire a professional. How can you hire wisely? Check out our story on how to find a trustworthy and affordable financial advisor.


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