Imagine that you’re planning a dinner party for some friends. If you’re a do-it-yourselfer, you might already have all of the right tools, come up with your own recipe based on the guests’ preferences, and cook the meal yourself. The outcome will depend largely on your cooking abilities and getting the timing right, but you might spend more time in the kitchen than with your friends.
Instead, maybe you decide to cook a recipe you’ve already had success with, which might be a little faster and less stressful. Or, you might just cater a meal from your favorite restaurant to be sure everything turns out great and maximize time with your friends. Even if you’re an experienced chef, you might learn a thing or two by trying out new catered meals.
All three options could result in a great party – it just depends on which one suits your needs best.
Just like planning a dinner party, there are many different ways to go about planning for your retirement.
Most people have at least some understanding of what stands between them and their financial goals, but they are often overwhelmed by the number of potential paths they could take to get there. While one person might be comfortable building and maintaining their own portfolio, another might prefer working with a financial planner that handles all of the details. While there are multiple right roads to get to your goals – success depends on your individual skill sets, passions, and the time you have to dedicate to managing your finances.
In other words, it depends on you.
Let’s take a look at three different types of investors, what characterizes each type, and where you might fit into the mix.
The Do-It-Yourselfer prefers to handle all of their own financial planning – from planning how much to save to executing trades through a broker. If you read The Wall Street Journal every morning, don’t mind reading through IRS tax laws, and enjoy a good 10-K annual report, you may already manage your own portfolio and have a plan in place to reach your retirement goals. Many do-it-yourselfers have a background in accounting or finance, but they may also be self taught investors that don’t mind putting in the extra hours.
People typically end up in this category for three reasons:
1. They want to save money by not paying an advisor’s fee.
2. They believe they know enough about the world of investing and financial planning to accomplish their goals on their own.
3. They often enjoy the investing and planning processes.
I can identify with both of these reasons. Heck, if I wasn’t an advisor, I would probably lean pretty heavily toward being a DIY-er – although I might be turned off by how intensive it is to manage my own portfolio.
Let’s look at the time and energy requirements of the DIY path. Setting up a financial plan and portfolio is time-consuming and complex, and after it’s set up, you’ll want to check back in regularly to make sure your risk level and asset allocation haven’t shifted outside of where you want them. Some people find it easy to maintain a portfolio, while others push it to the back burner for longer than they should. And, it’s easy to forget about rolling over assets into the right accounts or taking advantage of new tax laws.
Of course, there’s also that pesky question of how much you know about investing and financial planning. But chances are if you’re interested in the DIY path, you have at least a basic understanding or else you probably wouldn’t be interested.
The do-it-yourself approach can be a good fit for investors with fewer assets and less complex financial situations, or those that simply enjoy the investing and planning processes regardless of your level of assets. As you accumulate assets, get married, and have children, the amount of time and expertise required to properly manage your financial assets grows. Small nuances between retirement accounts and planning for things like Medicare and Social Security can make a big difference in your retirement income.
Collaborators are DIYers who want an outside opinion every once in a while. They want to handle it themselves, but they want a professional on hand in case they have a question or want a second set of eyes to look at what they’re doing every now and then.
Collaborators sometimes seek out a non-planning advisor that can help execute trades and provide advice on an hourly basis or even a CPA or other financial professional. They typically like to maintain a lot of control over their portfolios and long-term plans, but understand the value of a professional’s input from time to time.
The most difficult decision for many collaborators is whether to use a traditional financial advisor or a robo-advisor. While robo-advisors tend to have lower costs, they can’t meet with you and discuss your plan in person. You can also use the same financial advisor in the future when you require planning-related services without having to potentially transition assets out of a roboadvisor account.
While collaborators may not necessarily want high-level advice about retirement or estate planning at this point in their lives, they may lean on a financial advisor to assist in specific areas – they just don’t want anyone else touching their portfolio. They may see a higher level of attention from an advisor as increasingly important as they accumulate more assets.
Delegators are a little more open-handed in planning their financial future. They value the time they recover and the confidence they get by using a professional advisor more than the fees they pay them.
That’s not to say that they don’t care about financial matters, they just don’t want to go it alone. They would rather spend the time they recover on matters that interest them more, such as their family, business, charitable activities, or traveling. They want to know that they have a trustworthy advisor they can lean on. But don’t be fooled by the name – delegators are not removed from the process. While a dedicated holistic financial advisor puts all of the pieces together and maintains the assets on a day-to-day basis, the delegator’s input is an important part of forming their financial plan and keep them on track to meet their goals.
Many delegators are investors that have substantial assets and relatively complex financial situations that may involve retirement distributions, medical expenses, estate planning, and other issues. Other delegators just recognize that these issues are not their areas of expertise. Holistic financial advisors, like TFS Advisors, specialize in helping these individuals and their families make financial decisions while taking into account all of these factors, which can be a difficult task for any individual person. These people realize that investing is just one component of financial planning and tend to require more of other components that are more difficult to handle yourself.
Bonus Investor Type: Delegators-in-Training
Since the financial crisis of 2008, we’ve seen a fourth type of investor pop up more and more. When the crisis hit, an entire generation of DIYers and collaborators had their ethos shaken to the core. They no longer trusted themselves to navigate the financial landscape on their own, so they decided to work with a trusted advisor. I call this group “Delegators-in-Training” because they are still DIYers at heart, but they’re challenged with trusting a professional. They want to leave their financial matters to a professional, but they struggle to relinquish control. We monitor and maintain their portfolios and their overall financial plan, but they check in more frequently than other clients and have a lot of ideas of how everything should be done.
The Bottom Line
What kind of investor are you? The answer to that question will help you determine what type of advisor you could work with and how you might invest. While there is no definitive right or wrong type, a bad fit could mean planning for your future involves more headaches than you need. And just because you’re a do-it-yourselfer now doesn’t mean that you won’t change categories in the future as your financial situation evolves.
Take your time to consider your goals and objectives when deciding where you fit, and don’t be afraid to make a jump as your financial needs change. You can research potential investment advisors using FINRA’s BrokerCheck or see CFP Board’s website for advice on how to select an advisor.
If you want to talk about whether TFS Advisors would be a good fit for you, feel free to drop us a line today to learn more about how we can help.