Should DIY Investors Consider Working with Financial Advisors in Volatile Markets?

Even though advertisements make do-it-yourself (DIY) investing look easy, the path to positive returns is often over-simplified. It takes years of experience researching investments and managing portfolios before anyone, DIY or professional, can consider themselves expert.

When markets provide positive returns, everyone looks like a genius. However, what happens during periods of volatility?

 

Should investors manage their own assets or outsource to professionals?

There are several reasons why some people opt to manage their own money. Some DIYers: 

  • Follow investment gurus who provide “proven strategies” in newsletters
  • Believe they are investment experts when the markets are going up
  • Aim to avoid the fees that are charged by professionals
  • Are inclined to manage their own assets because they aren’t sure how to select the best financial professionals
  • Do not want to give professionals control of their investment decisions

When financial markets are trending higher, as they have generally done over the past decade or more, it’s likely DIY investors will see a correlated positive return on their investments. Softening the blow, however, during a market correction is a different task altogether. DIYers might find that they require professional help when markets are experiencing greater volatility. 

 

What is the biggest misconception about working with a financial advisor?

Working with a financial advisor doesn’t mean investors have to release full control over their assets. There are financial advisors typically utilize either a discretionary or non-discretionary approach. If control is an issue, investors should consider selecting non-discretionary advisors who must obtain investor approval for their investment decisions. This may slow down the investment process, but it enables investors to retain some element of control over the decisions of professionals.   

If investors prefer to turn over investment decision-making to professionals then they should select a discretionary manager. After all, why hire a professional and second-guess their recommendations?  It’s important to note that discretionary advisors will base their decisions on what they believe is in their client’s best interest, as long as they are adhering strictly to the standard of a Fiduciary.

There are some investors who hire financial advisors yet retain a smaller amount which they might continue to manage themselves. Over time, many DIY investors end up turning over their entire portfolios to professionals after they have developed enough trust. 

 

How does a financial plan impact investment strategies?

One component that many DIY investors may overlook is the need to build and implement a holistic financial plan. Hiring a financial advisor who incorporates a robust financial planning component into their service offerings could be advantageous. The investment portfolio is important, but there are many other key decision points where a financial advisor can weigh in.  When interviewing financial advisors, ask them how holistic they will be with such advice. 

While many DIY investors may be confident in their ability to manage their retirement accounts, often-times they may not have a financial plan in place that incorporates how their investments are going to help them achieve specific goals, such as retiring on time (or earlier), or how they interplay with estate planning, tax strategies, or other financial needs and goals.  

A comprehensive financial plan may include:

  • Estate/legacy planning
  • Education planning for children/grandchildren
  • Tax strategies
  • Retirement planning strategies
  • Charitable donations

Working with a financial professional who holds the CERTIFIED FINANCIAL PLANNER (CFP®) designation can help you develop a financial plan specific to your needs and objectives.

 

Why is there a need for financial discipline?

Many DIYers can be impacted by emotions when they invest their own assets. For example, they buy investments when the markets are producing positive returns and sell their investments when the markets are producing negative returns.

While counter-intuitive, disciplined investors are doing just the opposite. They are buying stocks when prices tick lower, likely with a plan for holding these investments over the long term. It takes discipline to stay the course when markets are down and even more discipline to consider yourself a buyer.  Truth is, when investors adhere to a low turnover, buy and hold approach they are far better positioned to avoid the emotional swings of the market, while also deferring taxes. 

Think of it this way: if an investor liked security enough to buy it at $100 per share, and the security declined to $75 a share, it should be viewed as a buying opportunity all else being equal.

As they say, no one rings a bell at the top of the market, and no one rings a bell at the bottom of the market. Most professionals practice a disciplined form of money management. They take emotion out of their decision-making processes.

 

Why does working with a team of experienced financial professionals matter?

If DIYers are currently managing their own money but are concerned that they may not have the skills to manage their assets in down markets, they are not alone.  Rather than weather the storm themselves, they should consider hiring an experienced team of financial professionals who have decades of experience managing money in a variety of market conditions for individuals, families, and business owners. 

The primary role of financial professionals is to help their clients achieve their financial goals. 

There are four key elements that make this happen:

  • They help their clients develop tailored financial plans that cover a broad range of financial issues
  • They understand their clients’ tolerances for risk
  • They know the investment horizons (when they need money) of their clients
  • They develop an investment strategy for each client
  • They modify the strategies based on current market conditions and changing client needs

Given recent market conditions, many DIY investors are considering outsourcing their need for financial planning and investment management to a team of experienced professionals.

Linscomb & Williams has decades of experience managing client portfolios in a variety of market conditions. Our disciplined approach to the management of our client's assets helps investors achieve their goals in a variety of market conditions. 

We have a video in which we discuss the hallmarks of shrewd investing (and the pitfalls of not-so-shrewd investing). Please reach out and contact us to learn more about how we can help investors achieve their financial goals in volatile markets. 

Are You Better Off As A DIY Investor or Working with a Financial Advisory Firm?



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William

William "Bill" Kring, CFP®

As a member of our Atlanta Wealth & Pension team, William "Bill" Kring is a Managing Director and Senior Wealth Advisor for Linscomb & Williams.

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