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?
There are pros and cons to managing your own investments versus hiring an advisor to do so. On the pro side there is a wealth of information available to you to assist in decisions regarding asset allocation, the risk you accept with various investment choices, strategies for investing such as dollar cost averaging, market timing, and buy and hold strategies to name a few.
On the con side, inexperience can cost far more in losses and missed opportunities than you will pay someone to assist you. You may have trouble sleeping at night having taken on the responsibility managing your investments brings.
That said, the most important step is to know yourself, are you well versed in finance? Do you have an interest in learning or applying what you know to your investments? Do you have the discipline to stay with your investment strategy in good times and bad? The answers to these questions will assist in your decision.
Should you decide to hire a financial advisor, choose a CFP (Certified Financial Planner) and if possible a fee-only approach. NAPFA is a good place to look for qualified advisors in your area.
Enjoy your retirement!
Your question holds a couple of interesting concepts. Should you do-it-yourself? How should you invest if you do? The first question is often asked to save on the cost of an advisor.
But what if an advisor was free, would it not pose another question? Do you love to invest and spend your time doing that? If you answer yes, then I would suggest you pursue the do-it-yourself approach. But if you do, then you should really spend the time to self-educate yourself and have patience developing a strategy that fits you.
Using an investment advisor or any professional should be a decision on added value. I use advisors for more experience or just because I don’t want to spend the time and effort myself. How much is your time worth? It’s just a simple cost-benefit analysis on whether to use an advisor. It’s really no different to why a business owner hires employees.
On the second question on how to invest: Over the years I’ve seen thousands of different strategies and a lot of them are useless but then I’ve seen a large amount that gets the investor to their goals. The ones that are successful are usually built around similar principals. I’ve found after 20 years investing for clients and myself that the only strategy that matters is the one that you like that gets you to your goal.
Everyone has a strategy they think best about how to fill a dishwasher but I only care about the dishes getting clean. If the dishes don’t come out clean then you need to change strategy. Sure, someone can always find another way to include a couple more dishes, but do you care?
All the best,
My answer is going to sound very self-serving. And for that, I apologize.
But having said that, I would recommend that you go with a professional advisor. The question(s) you have now and will have in the future are going to become increasingly complex: "How do I balance the growth of my portfolio with fear of losing money in the stock market?" "What are the best medicare strategy for my situation?" "Do I have the capacity to lose any of my retirement accounts and, if so, what is this and how much am I willing to put at 'risk'?" "How much 'cash' will I need in the next year? Two years? Five years?"
And perhaps more importantly, "I don't want to pay the high fees for an annuity that forces me to pay a high commission to the salesperson. So what investment strategy should I implement that will keep me from running out of money before I run out of life?"
In my experience, a simple 50/50 blend of stocks and bonds is seldom the right answer (sorry "robo-advisors" ... NOT). Instead, you entire financial future, including your legacy intentions, should be understood and your investment strategies (did you notice the "plural?") should be created, explained, understood and signed off on by you, monitored and adjusted to meet your unfolding goals and changing needs.
If you're cofident that you have the time, tools, and inclination as well as the emotional intelligence to not panic during inevitable market corrections, then go for it.
But remember my mother's adage:Penny wise. Pound foolish.
Sure, you'll save money by not hiring a financial advisor. But you may be shooting a hole in the bottom of your boat in the long run.
Do you know how long your money has to last or the tools that will help you estimate this? That's a longevity risk issue that an adviser can help you estimate.
Do you know what your retirement income sources are? Do you knwo the best claiming strategy for Social Security or a pension? Maybe you've already claimed but for those who haven't then this is a valuable service of an adviser.
Do you know your risk tolerance and how best to estimate it much less periodically update it? And do you know whether the portfolio you're choosing is aligned with that Risk Number? too often folks have one idea of their risk tolerance but when personal or market conditions change, their idea of risk may change but their portfolio hasn't kept up with the changes.
A 50/50 approach may work. Vanguard Balanced Index Fund is sort of like that as an example. But it doesn't have exposure to international or emerging markets. It doesn't have international bonds. These elements may be useful for risk mitigation and diversification.
Do you need a certain income from the portfolio? Do you want to emphasize dividend-paying stocks to generate income? Or what is the most tax efficient way to withdraw funds or from what buckets?
If you can do these, then you probably don't need a professional.
If I could change my own oil without blowing up my car engine, I would but I hire a professional. These are the questions you need to ask yourself.
This is a great question with a pretty straightforward answer. Do you feel comfortable trying to invest the money on your own?
Doing it yourself has become easier than ever. You can open an account with companies like Etrade, Interactive Brokers, and a few others that offer ready-to-go portfolios that are built based on your tolerance and/or strategy.
My advice is to give it a try on your own and if you decide that you don't feel comfortable then hire someone.
Best of luck!