Should I try a do-it-yourself approach when beginning to invest 50% in stocks and 50% in bond mutual funds, or hire a financial advisor to select a basket of stock options and bond mutual funds?
I am retired and I want to invest the money in my 401(k) and IRA accounts using the 50% stock and 50% bond asset allocation model. Do you suggest that I try a do-it-yourself approach when beginning to invest 50% in stocks and 50% in bond mutual funds? Or should I hire a financial advisor to select a basket of stock options and bond mutual funds?
Since you are retired, you may consider meeting with a professional Certified Financial Planner for a consultation. There are many factors in determining how best to invest your money to last you for your lifetime.
The factors you should consider are your time horizon, risk profile, and the goals you are trying to achieve. After the consultation, you can then determine whether you want professional help or do it yourself. One of the best aspects of professional help is that it helps you stay on target to help you achieve your goals without emotion. A 50% stock and 50% bond portfolio may or may not be appropriate for your specific needs and goals. A professional will help guide you to know the best asset allocation to achieve your goals. You can go to www.plannersearch.org to locate a professional in your area. Best wishes.
I have been both a personal investor as well as a professional, so I understand where you come from. Saving money on managing your own portfolio is an option, but you miss on other important financial information which could cost you more down the road, such as Medicare and Social Security planning. Thus, if you need a well-balanced financial advice, I would work with a CFP®, not a broker, who only knows the investment trades, which you may handle well on your own. Ideally, a CFP® can guide you not only building a portfolio that suits your risks but also give you tax guidance to save your tax or minimize future tax cost in the retirement. I recently became an EA, who can prepare tax return as well as represent tax payers before the IRS, and I learned how tax preparation goes hand-in-hand with the investment planning, or the overall financial planning.
Thus, before you decide a 50/50 portfolio is good for you, you need to ask yourself what the goals here: generate more income or growth. Truthfully, one balanced fund could reach that 50/50 objective, but it’s your goals (income vs growth) and risk tolerance (aggressive, more stocks vs moderate, more fixed income) decide your portfolio design. Best!
You should not hire a financial advisor who is willing to select individual stocks for you, nor should you do that yourself. The historical evidence shows that the vast majority of people who engage in stock-picking underperform the market dramatically, even advisors. There are plenty of advisors still doing this thinking they are somehow able to predict the future. They can't, no one can.
Instead you should be investing in the entire market, which you can only really do with mutual funds.
To the question of allocation, I'd ask how you decided that 50/50 is the right allocation for you. This is where an advisor can really help. Asset allocation is complex and it's easy to mess up - naive diversification is a huge problem that I see when investors pick investments without guidance. The goal of asset allocation is to dampen the volatility of your portfolio while still achieving a reasonable return, but if you end up without proper diversification, your allocation can't do it's job.
To that end, if you want a do it yourself approach, an easy way to assure that you are actually diversified is to pick a low expense ratio target date fund. A target date fund for 2020 typically has a 55/45 allocation right now. This allocation will change over time in a risk appropriate way.
I'd recommend talking to a few fee-only (not fee-based) advisors to get a better understanding of your situation and what the best asset allocation would be for you specifically.
It depends on the size of your invested savings. If they are small (say, less than five years' living needs) then the additional cost of an advisor might not give you enough of a benefit for it to matter much. You might consider hiring a planner by the hour to select some funds for you, but might be better off avoiding the ongoing management fee. However, an advisor would be very valuable if you have substantial wealth. First of all, he/she would recognize that a 50-50 allocation might or might not be optimal in your circumstances; also, your advisor could assist in planning your estate, guiding you through times of market volatility and helping to keep you from acting out of fear; and putting parts of your portfolio into asset classes you may not be familiar with but would be very beneficial (for example, preferred stocks.)
And you should never under any circumstances own stock options. They are gambles, not investments.
It depends. A monkey can invest in a 50/50 portfolio via a total stock and total bond index portfolio and outperform most financial advisors. You should absolutely not hire an advisor to select a basket of stock options and bond mutual funds - Please believe me: you are wasting your money. You should hire a financial advisor for one thing and one thing only: holistic lifelong income planning. Including, but not limited to, 7 Tiers:
1) Assist you in clarifying your goals objectives and fears.
2) Preparation and assessment of your families balance sheet and income statement
3) Retirement income analysis - using a software program and/or spreadsheet
4) Overall asset allocation analysis
5) Insurance and estate planning review
6) Social security and medicare consulting
7) A summary of action steps and recommendations that will improve your retirement outcome