Let’s face it – starting to invest can feel nerve-racking, especially since many of us didn’t get much of a financial education early in life.
Several factors contribute to new investor anxiety, including unfamiliar financial terms that can be intimidating and overwhelming. It’s also challenging to know who you can trust with your finances.
Managing your investments solo may sound like a daunting task but hiring the right financial advisor is an equally big decision.
Should you start investing yourself or do you need a financial advisor?
First, the earlier you invest, the better. So whether you start investing on your own or with an advisor – or a combination – don’t wait!
Next, advisors are not gatekeepers to the market. You have plenty of options, like opening an account with investment companies like Fidelity, Betterment, Charles Schwab, or Vanguard. If you want to invest independently, these companies have plenty of options to get you started.
While you don’t need an advisor to start building wealth, you may find that developing a relationship with one can bring more intention to your financial life.
Here are eight tips to help you pick a financial advisor and prepare for your first meeting, so you can maximize your investment choices and build wealth with purpose.
Looking for a better investing experience?
1. A Fee-Only Advisor Can Help You Develop an Investment Strategy
Consistent investing is an essential part of the wealth-building process, and with an advisor, you don’t have to go it alone.
A high-functioning portfolio consists of several flexible pieces, including:
- Your financial goals
- The time horizon for your goals (i.e., retirement is in 20 years, your child goes to college in 10, and you want to remodel your kitchen in 5)
- Risk tolerance and capacity (your willingness and ability to assume risk)
- Asset allocation and diversification (the type of securities you invest in)
- Tax efficiency
- Consistent rebalancing to maintain your ideal portfolio
Yes, you must regularly do all of these things (and more) with all of your investments to ensure you’re on the right path. It can be overwhelming to tackle this list alone, so teaming up with a financial partner who takes the lead can ease pressure and free you up to spend time on what’s most important to you.
Your advisor can ask the right questions to make strategic investment recommendations based on your goals. For example, someone who wants to make work optional in five years will have a different investment plan than someone well into retirement. Your investment strategy should evolve as you do, and your advisor can be an excellent resource to make that growth seamless.
So what does it mean that your advisor is “fee-only”? Having a fee-only advisor to guide you through your money decisions can add immense value to your life.
With a fee-only firm like Abacus, we only get paid from our clients. We don’t accept third-party commissions, referral income, or kickbacks from external sources, which eliminates and avoids conflicts of interest. As fee-only advisors, you can trust we will manage your money with intentionality and care, and we are ethically bound to keep your best interests first.
It’s incredibly valuable to have a professional on your side who can bring you structure, thought, and intention to your entire financial life.
2. What a Fee-Only Advisor Can Do Beyond Investments
Your advisor can help you effectively manage your investment long-term, but that’s just one piece of the puzzle.
Think of it this way:
Doctors, dentists, trainers, hairdressers – we all have professionals who keep things running smoothly and improve the quality of our lives.
So why not have a professional guiding your money?
A financial advisor obviously helps with your investments, but they can also impact the health and well-being of other areas of your life.
To illustrate all the ways a financial advisor can improve your life, this “Shape of Planning” graphic highlights how working with an advisor is like having a professional life partner.
Beyond helping manage your money, a financial mentor can help you create objectives, meet your goals, and partner with you to create a comprehensive strategy that sets you up for a bright future.
Let’s dive deeper into the different categories so you can start thinking about what’s important to you, as well as preparing for your first call with a financial advisor.
3. Define and Live Out Your Goals
We all have dreams and desires around money. Many of us crave financial peace, hoping for the knowledge and security to provide for ourselves and our families. We’re also inspired to think about the possibilities money can bring – a dream house, a child’s education, building a career you love, or creating a fulfilling retirement.
An Abacus advisor wants to know what you value so we can help you strategize unique goals that become a reality, while also being nimble enough to revise your strategy if your wants and needs change.
When you connect your money with your goals, you start to live a healthier, more purposeful life. A recent report from Financial Health Network found that two-thirds of Americans were considered financially unhealthy in 2021, meaning they couldn’t meet their financial goals and weren’t ready for unexpected expenses.
This sobering statistic illustrates the need for a comprehensive financial team – doctors for your bank account – who can give you that extra help to improve your financial situation and meet your short- and long-term goals.
4. Connect Your Money with Your Life
Money connects your life and goals, and so many areas of life can benefit from a personalized financial plan:
- How much do you need to retire comfortably?
- Is renting or buying a home the better option for you?
- Do you need to save for your children’s education, and if so, how much?
- Is it time to ask for a raise at work?
- Are you overpaying on your taxes?
You and your advisor can walk through these and other questions together and explore answers that help give you direction.
Everyone’s needs are different because no two people (or balance sheets) are entirely identical. Your advisor can help analyze your income, property, spending, borrowing, giving, and investing, and strategize a productive path forward.
They can also give you personalized recommendations like cash flow planning, time-tested investment strategies, and tax-smart charitable giving based on your situation.
Your money may seem like a Pandora’s box: open it, and a flood of questions pours out, leaving you overwhelmed. But your financial advisor knows the right questions to ask and can simplify the process to make it as stress-free as possible.
5. Protect Yourself and Your Wealth
You spend so much time building your wealth, but are you taking the proper measures to protect it?
A recent Bankrate survey found that 37% of Americans would need to borrow money to pay off an unexpected bill of $1,000. This means that nearly 4 in 10 Americans haven’t adequately prepared for an unanticipated financial emergency.
Why risk it?
We all want to prepare for the worst and expect the best, so making sure you can pay an unexpected financial expense is essential to protecting yourself, your family, and your assets.
A great place to start is building an emergency fund. Your emergency fund is like a cash cushion that absorbs the shock from a money fall such as a job loss, unexpected medical bills, or costly property repairs.
In addition to cash, the proper insurance coverage will help insulate your wealth and protect your loved ones. While everyone’s needs are different, many benefit from life, disability, medical, and personal liability coverage. Insurance is one of those benefits you hope to never use, but you’re definitely grateful for it if something happens.
At Abacus, we don’t earn commissions from insurance recommendations, so you can have confidence in knowing we genuinely recommend the best insurances to fit your budget and lifestyle.
6. Keep More Money with Proactive Tax Planning
Tax season can be disheartening, and many people pay more taxes than they need to. Many also feel they are being taxed unfairly; a Pew Research Center poll found that 40% of Americans feel they are paying more than their fair share of taxes.
The good news is many strategies can help you reduce your tax payments, including tax-advantaged retirement accounts, refinancing loans, adjusting your investment portfolio, building a charitable giving plan, or carefully selling/giving away appreciated assets.
Tax policy is extremely complicated, so if you don’t already have one, we can connect you with a Certified Public Accountant who knows how to effectively minimize taxes.
We’ll work with your CPA to reduce your tax payments and ensure your tax preparation is as organized, effective, and straightforward as possible.
7. Build an Estate Plan that Honors Your Legacy
No one wants to think about death – but it’s inevitable and requires a great deal of financial planning to leave a positive legacy for your loved ones.
However uncomfortable it is to ponder, your death will likely create significant financial changes in the lives of your family. If well-planned out, those changes can be positive; if not, they can be a burden.
How can you be sure your estate plan is where it should be?
- Update your beneficiaries on any life insurance policy, retirement accounts, etc.
- Ensure your wishes are clear, either in a trust, will, or a combination
- Select the people who will help carry out your wishes, like an executor, power of attorney, or guardian for minor children
- Be open and honest with your loved ones about your plans
Your financial advisor can coordinate with your estate planning attorney to create a plan built around your values and goals that minimizes taxes and is convenient and comforting for your family in their time of need. No one should have to make stressful financial decisions when mourning the loss of a loved one.
We can also help you define and extend your legacy by creating a family foundation, outlining your funeral wishes, or making a video to pass on to future generations.
8. Make a Lasting Impact
Beyond leaving a positive legacy for our families, we all want to make a lasting impact on the world. A report from the National Philanthropic Trust found that Americans gave $471.44 billion in 2020 – a 5.1% increase from 2019 – with women taking the lead in the philanthropic movement.
There are so many ways you can support causes and organizations you care about while maintaining a mindful tax eye:
- Bunching charitable donations
- Opening a donor-advised fund (DAF)
- Giving appreciated assets
- Being open and generous with your time and talents
We can work with you to build a charitable giving plan that aligns with your goals and values.
Money, in Full Color
As you can see, investing is just one piece of the dynamic picture that is your financial life. You can think of investing as the first color to help you paint your financial masterpiece.
While you don’t need a financial advisor to start investing, forming a relationship with a true financial partner can add so much value to your life in the long run.
Our goal is to connect your money with your life and help you use your wealth in ways that matter most to you.
To explore the benefits of working with an Abacus financial advisor dedicated to your unique life and goals, schedule a free consultation today.