5 Downsides to DIY Financial Planning
Even the savviest investors can fall short in several key ways with their retirement decisions.
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Resources for do-it-yourself financial planning are plentiful these days. There are websites with retirement calculators, guides and apps you can download and automated algorithm-based investment advisers that will tell you what to buy, hold or sell.
But should you go it alone?
Even if you’re a savvy investor who’s perfectly capable of understanding financial concepts and applying them to your own portfolio, other factors could affect your success. Here are a few to consider:
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1. Can you keep your emotions out of it?
This is your money, your future, your legacy. People make the biggest financial mistakes when they panic and sell low in a bad market or get greedy and buy high in a good market. And who’s going to stop you if you decide to take $10,000 out of your 401(k) to go to Europe on a whim? (Or if not who’s going to stop you, who’s at least going to make a face and ask you if that’s really such a good idea and discuss the pros and cons of your decision?) If you’re on your own, you won’t have someone to talk you through those impulsive decisions.
2. Do you have the time?
This isn’t just about talking to your brother-in-law and making some stock picks. To make good choices, you’ll need to do lots of research and read those prospectuses. Every. Single. Time.
Is your spouse going to nag you when you get home from work, give a quick kiss on the cheek and disappear into the world of finance on your laptop? And what will your spouse do if something happens to you?
Here’s a suggestion: If you really enjoy doing your own financial legwork, why not consider keeping control of 10% of your investments and letting an adviser take care of the rest? You’ll still get the mental stimulation, you can brag about your successes, but any mistakes you make won’t have as large of an impact on your overall retirement. (Another plus: Most professionals probably won’t mind discussing your do-it-yourself piece and bouncing around ideas if they’re managing the rest of your portfolio.)
3. You might not be as smart as you think you are.
If you’ve been investing successfully on your own for the past few years, that’s great. But just about anybody can do well in a bull market. The tough part comes when there’s a correction. (Note: That’s when, not if.) How are you protecting yourself for the downside? Do you even know about the products that are out there to help safeguard your income stream? A good financial adviser attends classes and stays up to date on financial strategies, tax law changes and more. And he has years of experience. He’s seen hundreds of people come through his office door, and he’s probably helped several clients with problems similar to yours.
4. Every quarterback needs a coach.
Tom Brady led the Patriots to a Super Bowl victory — but he had a whole lot of people on the sidelines helping him make those plays. When it comes to your financial future, don’t you want to have a team of coaches behind you? Your financial adviser can work with others — tax experts, estate attorneys, insurance professionals — to build a plan that helps you meet your goals.
You’ll still be the MVP — but they’ll be there to support you on offense and defense to get you across the goal line.
5. It’s only going to get more complicated.
Saving money was pretty easy when you were a kid. You just dropped your quarters into a piggy bank. Then came student loans and credit. A mortgage. The costs that came with having kids. And yet, all that pales in comparison to planning for retirement. You might have been fantastic at the accumulation phase of your financial life, but the distribution and preservation phase can be a scary place to negotiate on your own.
Sometimes, it’s just knowing what order to tap into your income streams that makes all the difference. Or understanding your risk tolerance as you get older vs. when you were young and fearless with your money. Even if you managed to build a pretty nice nest egg all by yourself, you may need an assist when it comes to making it last for 20 or 30 years in retirement.
Ask yourself this: If you wouldn’t plan your own wedding or funeral, or even a family vacation, without help, do you think you should fly solo when planning your financial future?
Kim Franke-Folstad contributed to this article.
Retirement Solutions is an independent financial services firm that creates retirement strategies using a variety of investment and insurance products. Neither the firm nor its representatives may give tax or legal advice. Investment advisory services offered through AE Wealth Management, LLC. Investing involves risk, including the loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Any references to protection benefits or lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.
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