as Investment Advisor
By Alan Goldfarb, CFP®, AIF®
With the stock market climbing the way it's been a last few years ago, who needed professional investment advice! Either pick index funds or throw darts at a list of stocks or mutual funds and you probably couldn't go wrong. As the saying goes, a rising tide lifts all boats.
Of course, investing isn't quite that simple. And the fact is, the tide wasn't going to rise forever. As history shows, it falls at some point. How far and how fast is anybody's guess. So if you don't think you need an investment advisor on the way up, you might consider having one on the way down. Here are some reasons why a qualified financial planner should serve as your investment advisor.
Keep you from panicking. We're brave souls during rising markets, but we're cowards during drops. Investors-especially less experienced ones, which this seven-year-long bull market has recruited in record numbers-tend to get into markets well after they've started to rise, and sell well after they've started to drop. In essence, they break the golden rule of investing by buying high and selling low. A financial planner provides a voice of reason when markets falter. A trusted financial planner can calm a nervous investor, and help the investor make prudent moves. If an investor is investing for long term, like retirement, it may be best to sell nothing in a downturn. It may even be a good time to buy!
Build an all-weather portfolio. Investors should invest for a clear purpose, for a goal, not just to be in the market. An investment portfolio with a purpose is one that won't get caught up in a "hot" market nor panic in a "cold" market.
For example, let's say you build a portfolio that's 70 percent invested in stocks because you are building a long-term retirement fund and are willing to take short-term risk. In a bull market like this one, the stock portion of the portfolio probably has risen dramatically in value. Stocks may now represent 80 percent or even more of the portfolio's total value. That means the portfolio is riskier than before when the market takes a downturn. A financial planner monitoring your portfolio can help you rebalance your investments (in essence, sell off some winners) to bring the portfolio back in line with your current investment guidelines.
Educate you. A true financial planner-not just someone looking to sell you investments-will help you understand why you're investing and why a particular investment is right for you.
Motivate you. Many of us swear we're going to start an investment portfolio or redesign or rebalance the one we have, but we just don't seem to get around to doing it. A financial planner can get us moving in the direction we need to go.
Work with the big picture. Investments should be made in light of the other parts of our financial lives. The stock market may look tempting to someone who's not currently invested. But before jumping in, it might be wiser to be sure your financial cornerstones are secured. For example, it may be more prudent to buy additional disability or life insurance or pay off some high-interest debts or start an emergency cash fund. If you're suddenly disabled or have a financial emergency, you might end up having to sell investments (or worse, sell them during a down market) in order to pay the bills.
Or perhaps you already have a healthy portfolio but no estate plan. That means when you die, you could end up paying a big chunk of your well-earned portfolio to Uncle Sam in the form of estate taxes. A financial planner can help you make sure the rest of your financial house is in order, so that your investments are well protected from other potential financial problems.
Pick investments. There are thousands of mutual funds, stocks, bonds, real estate, foreign securities, annuities and other investment choices to sort through. Most of us don't have the time or expertise to sort through the many options. A Certified Financial Planner professional can help you select the ones that are appropriate and necessary for your needs and objectives-not just because an investment is the current "hot" investment choice.