With a market undergoing huge swings almost daily, guidance from a financial professional is crucial to avoid knee-jerk, emotion-based decisions that could hurt you in the long run.
Working with a financial advisor can not only help you better manage your investment portfolio, but also help you save money by identifying tax-saving strategies you can apply to your financial decisions, plus additional benefits.
A 2019 Northwestern Mutual study found that U.S. adults who work with a financial advisor report “substantially greater financial security, confidence and clarity than those who go it alone.”
The value of working with a financial advisor varies by person and advisors are legally prohibited from promising returns, but research suggests average additional investment returns can range from 1.5% to 4% more each year.
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Choosing a financial advisor is a major life decision that can determine your financial trajectory for years to come.
Here’s what to consider when deciding whether to utilize a fiduciary financial advisor’s services.
1. Investment Performance
The 2016 Vanguard Research study referenced above found that working with a financial advisor can add an extra 3% to your retirement income. However, it’s important to note that investing involves risk and no situation is the same.
Here’s how the study broke down an advisor’s impact on client portfolios:
- Facilitation of investing on a regular basis (+1.5%)
- Diversifying asset allocation (+0.75%)
- Sourcing of lower-cost investment vehicles (+0.40%)
- Continual rebalancing (+0.35%)
While it’s easy to think you could accomplish this on your own, having a professional ensure these important financial tasks are done consistently, and thoughtfully, is a significant advantage evidenced by the data. While this was a point-in-time study, this can shape your conversation with a prospective financial advisor about expectations for performance and responsibilities.
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2. Managing Tax Exposure
Whether you are nearing retirement or earlier in the planning stages, there are opportunities to be smarter with your money — this is where a financial advisor can help.
For example, an advisor can help identify which account(s) to draw from to pay for education or a second home that will have the least tax implications. And, they can help you develop a tax-optimized retirement withdrawal plan. In fact, a recent simulation conducted by Kindur found a $61,000 difference between the most tax-efficient draw down strategy and the least tax-efficient plan for a 62-year old married couple.
Find a qualified advisor near you to optimize your financial strategy.
3. Financial Clarity
Want peace of mind knowing you will have sufficient funds to cover the entirety of your retirement? Or just knowing what a sustainable monthly budget for you looks like?
A financial advisor can help you get clarity around your money. They can help you create a plan for each of those scenarios and everything in between. Planning with an advisor can help ensure you’re investing in a way that will allow you to keep to a sustainable budget that suits your lifestyle and vision for retirement.