Fast forward one year, and we realized all that we didn't know. Painting takes time and effort that we didn't always have. The only yard work we really did was keep up the grass because I don't like getting my hands dirty, and we didn't have time for any other landscaping. And then there were all those little extra things that had to be fixed. You know, like when some kids added too much TP to the upstairs toilet and it leaked into the downstairs ceiling.
We didn't know what we didn't know. And we didn't have time to learn. And some things, we just didn't want to do. So we hired professionals to do it for us.
That's how it is with investments. Personal finances are so…well, personal, that it’s difficult to know when managing your financial affairs alone is doing more harm than good.
For those looking to make the most of their dollars and cents (and really, who isn’t?), hiring an investment manager is often an ideal way to help alleviate some of the anxiety that is inherent in most self-managed portfolios.
What Does an Investment Manager Do?
Investment Managers (also called Asset Managers, Portfolio Managers, Financial Advisors and an array of other non-descript titles) specialize in advising clients on the right investment securities to help them meet their goals. Investment managers help clients analyze different types of securities and examine a client's comfort level with market and investing risk and their capacity to take on risks. They also help select the right categories of securities, or asset allocation.
In addition, Investment Managers make trades for you and re-balance your account to help maximize your investments. They also consider tax implications of trades, assist with withdrawals and monitor the progress of transfers.
The most important job of an Investment Manager is to help you focus on your long-term investing goals so you don't panic when the market turns down. Or become over-zealous when the market is on a tear. They spend a significant amount of time monitoring the pulse of the market to provide clients with advice.
At Pathfinder Planning, we understand that handing over your hard-earned assets for someone else to manage is a difficult decision. As a result, we try to simplify things as much as possible. We help manage the process by handling paperwork and following up on account applications and transfers.
Side story: I just completed a transfer of less than $25K that took over 8 weeks of follow up. Aaarrrggghhhh! No one should have to do THAT on their own.
We're committed to keeping you involved by developing an Investment Policy Statement designed to help you understand what you're investing in and to serve as a guide to keep you on track. This means when we place trades or periodically re-balance your account, you can be confident that the decision was made in alignment with your long-term goals.
What About the Fees?
One of the primary arguments I hear from DIY investors in opposition of investment management has to do with fees. Paying someone a fee to manage your portfolio cuts into profitability. While, on the surface, that appears to be a valid argument, a recent study conducted by Vanguard tells a different story.
Based on Vanguard's research, working with a portfolio manager can actually add “about 3%” to your net returns. They continue, explaining that “although every advisor has the ability to add this value, the extent of the value will vary based on each client’s unique circumstances and the way the assets are actually managed, versus how they could have been managed.”
I can't explain it any better than this quick Faucet video.
There are questions you can ask yourself to gauge whether or not you could benefit from the guidance of a professional portfolio manager. Here are a few to consider:
How much money are we talking about?
Beginning investors with not much money can easily start out with mutual funds that don't require much management. You can manage funds less than $1 or $2 hundred thousand with some education and advice.
When you start getting into larger investing amounts, you run into more tax issues, particularly when it comes time to withdraw funds from your retirement accounts. The guidance of an investment manager is critical to be sure you don't make an irreversible tax mistake. Also, you want to be sure that your funds are really working for you with the right investments and the right asset allocation at the right time.
Do you have investing experience? Some investors simply lack the background knowledge and expertise to manage their own portfolios. It's not that they aren't smart - many people are just never exposed to investing principles. That’s okay. Determining the right balance of asset allocation among a dizzying array of choices is a challenge for even the most well-intentioned investors.
Are you going to actually 'manage' your money? Through the years, I’ve found that many DIY investors don’t manage the portfolio. They pick an asset allocation and leave it alone, looking at the statements when they come in. They don't re-balance funds to keep on track, they don't make any investment changes, they don't monitor fund managers. To do it right, these things take time and effort.
With work, family, and just life in general, you have enough on your plate. DIY-ing your investments shouldn’t be one more thing that jockeys for your time. There is so much information to know, it's easy to become overwhelmed and paralyzed into inaction.
Are you unsatisfied with your returns? If you’re disappointed with your portfolio, it could be because you’re not in the right investments. Or maybe there is some underlying risk to the fund that you overlooked. Or maybe...a thousand other things.
If you identify with any of these sentiments, having a professional manage your portfolio may represent the best chance to meet your investment goals.
Still on the fence about the need for an Investment Manager?
Consider the old adage: Just because you can, doesn’t mean you should.
Anyone interested in securing his/her financial future through prudent behavior and investment management will need to follow a few important steps.
First, they will need to save and budget money. Second, spend wisely and eliminate unnecessary expenditures that don’t align with their long-term goals. And third, they will need to invest assets wisely. The first two are pretty straight-forward, but the last one is tricky. While everyone can make investment decisions, not everyone should -- at least not alone.
Pamela J. Horack, CFP® of Pathfinder Planning LLC provides personal financial planning advice and asset management for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.