Ask Yourself These Questions Before Hiring a Financial Advisor
With the advent of free online trading platforms and investment apps, more people are choosing to manage their finances and investments instead of using a traditional financial advisor. However, to go the DIY route, you first need to ask yourself some honest questions. After all, you are not as objective as you think . And you have to be vigilant about your own shortcomings, especially when your money is on the line. Here are important questions to ask yourself to evaluate whether you have what it takes to truly become your own financial advisor.
Ask These Questions Before Becoming Your Own Financial Advisor
What are your financial goals?
Before you make any investment decisions, you need to be crystal clear about what you want to achieve financially. Want to save for a down payment on a home ? Retire early ? Pay the debt off ? Create a reserve fund ? Make sure you have specific short-term and long-term financial goals.
How much time can you devote to managing your finances?
Effectively managing your own finances and investments takes time. Are you willing to take the time to read financial resources, research investments, monitor your portfolio, etc.? If not, you may want to work with a financial advisor who can afford to dedicate their time and expertise.
What experience do you have with investing concepts?
Before you become a solo investor, you need to know concepts like asset allocation, diversification, the difference between stocks and bonds, and more. If this seems strange to you, start reading before making an investment choice.
How comfortable are you with risking your money?
Managing your own investments means that you must determine your own risk tolerance. How would you react if the market fell and you lost money? Can you sleep at night with a high-risk portfolio? Knowing how much risk you can handle will determine what type of investment you choose.
Will you remain disciplined and stick to your investment strategy?
There are many very human behaviors that differentiate us from robots—good for humanity, bad for making money. It can be tempting to make hasty investment decisions based on emotions such as fear, disappointment or excitement. Becoming your own advisor requires the discipline to stick to a well-thought-out financial plan, even when the market is down or up.
By honestly answering these key questions, you will determine whether you have the knowledge, time, risk appetite, and temperament necessary to invest successfully without an advisor. The DIY route gives you more control, but also more responsibility. Weigh your answers carefully and decide whether the role of a financial advisor suits your needs and abilities.
If you do decide to invest in a financial advisor, you should do your own research about whose help you are enlisting. Be sure to familiarize yourself with the difference between fee-based and fee-only advisors , as some financial advisors may not have your best interests at heart. Or you can choose not to take the human path at all and instead choose a robot . No matter what, when it comes to finding the right financial planner, the last thing you want is to get scammed .