I often hear nurses either saying or being told they need a financial advisor. But too often I think they wind up getting ripped off by salesmen masquerading as advisors.Before taking the plunge and paying someone 1% of your investments or hundreds of dollars for flat hourly advice, consider your employer’s benefits. I like free better. Many employees can get free financial advice through their employer’s retirement plan administrator or fiduciary. These are companies like Vanguard, Fidelity, and Charles Schwab. At my facility the fiduciary ‘s account page has lots of free tools and online meeting consultations for free. They often show up on site where you can meet in person as well.
I wouldn’t pay a financial advisor anything until I had explored my employer’s free services. Admittedly, I’ve never paid for a financial advisor myself and the last one I saw was through my employer.
Surprisingly, that advisor said they hadn’t done very well themselves with their individual investments. They recommended the book “Rich Dad, Poor Dad,” which I read. It gave me just enough insight to go forth and promptly lose thousands of dollars in individual stock investments. It also made me think I should become a real estate investor, which I since realized I don’t really want to be. While their advice (other than the book) seemed ok, I couldn’t help but think, why am I going to listen to someone who by their own admission hasn’t done very well themselves?
I decided early in my career to manage all my finances and investments myself. While I made some basic, common mistakes I figured it out on my own and never looked back. I have no regrets. I can’t complain about my performance either after almost two decades of investing, even through the Mortgage Crisis, Great Recession, and COVID19.
Of course, managing investments DIY isn’t for everyone and a beginner can make a lot of mistakes. They can take on way too much risk. Investment mistakes is a nice way of saying “lose money.” Taking on too much risk early on can give you a skewed perspective on investing like declaring “investing is a loser’s game!” That is why utilizing your employer is a good place to start. You don’t need to pay someone for basic info and decent advice. You may want to pay someone for individualized and more in-depth advice. Just be aware of the costs and mind the old saying “Where are all the customer’s yachts?”
Agreeing to 1% paid for someone to manage your assets may seem low, it actually adds up. Paying hundreds of dollars for a couple hours advice might seem high, but consider 1% of 100k is $1k per year. You’ll pay that every year. That is a 1% drag on your investments which adds up over time. 1% of a 1M portfolio is $10k per year. If they invest you in a bunch of mediocre investments products with additional hidden fees and commissions with big $$ for them, you may realize “Ahhh, that’s why I don’t have my own yacht!”
If you pay someone a flat rate for one-time advice, that’s probably better than an ongoing %. You definitely don’t need to pay someone to park your investments in low cost, index funds (recommended by Warren Buffett) or practically idiot proof target date mutual funds. You’ll make a surprisingly good amount of return on your investment too if you go that route and self-manage. You’ll probably even more than the professional guys buying, selling, and managing your portfolio. Who try to “beat” the market on your behalf assuming they even try. Many advisors are basically using Index Funds too these days so they seem like they are performing well.
If you think you need some financial advice, look a little closer and start with your employer. Just be aware even employer’s financial consultants can still try to sell to you and earn commissions. If you have some investments saved up already like $50k-$100k be aware of and ask about any commissions with recommendations. But if you are starting out or don’t have much invested, they can easily answer questions and may even provide some useful advice that will make you money. A friend recently met with one and they were shown they were not actually capturing their full employer match. That’s potentially thousands in lost compensation and much more in lost future returns. You don’t need to pay someone to learn that lesson! If you want to listen to a more robust discussion around advisors and learn about Net-Worth too, check out this Podcast Episode.