Many individuals and families seek out financial guidance as they accumulate wealth and their finances become more complex. Simply put, they want to be confident that they're stewarding their wealth wisely.
But is it possible to quantify the benefit of working with a good advisor? The answer, according to independent researchers, is yes. Morningstar has found that working with the right advisor can result in an additional 1.82% per year in additional retirement income.
How is the extra income added? It's not through picking high-flying stocks, but through employing smart financial planning.
With the help of a qualified advisor, investors can make more profitable financial decisions in five key areas. The first is asset allocation—creating a mix of investments that provides the best balance between risk and reward.
An advisor can create a portfolio that carefully counterbalances different kinds of investments—or "asset classes." Having an allocation across different stock sectors, as well as an array of bonds, for instance, can help to capture returns across a broad swath of the market. And should a particular asset class run into trouble, other kinds of assets can provide a cushion.
Another important factor is tax efficiency. Especially in today's rising tax environment, how much you keep can be just as important as how much you earn. Minimizing your tax bills over time gives you more capital to invest, and that provides the potential for greater compounding. Tax efficient investing involves selling losing investments in order to offset the taxes incurred through capital gains; strategically positioning investments in tax-deferred and taxable accounts as appropriate, and avoiding short-term capital gains, which are taxed at up to 39.6%.
Having a sound withdrawal strategy is another key to performance. Taking retirement distributions in a carefully planned sequence can minimize taxes and help your performance go further.
Product selection also makes a big impact on overall returns, Morningstar found. Investment products, from stocks and bonds to mutual funds to guaranteed-income products, all have costs that must be weighed against their potential returns. A good advisor emphasizes this cost-benefit analysis.
Finally, one of the most important services an advisor can provide is to help you identify specific goals, each with a specific dollar amount and deadline. One of the costliest mistakes individual investors make is failing to quantify their objectives. That leaves them without a "compass" to gauge their progress. In this vacuum, they too often fall into the trap of trying to beat the market. Reacting impulsively to each day's headlines, they chase performance, overreact to perceived risks, and generally fall prey to self-defeating behavior.
A financial plan, and a good advisor, provide the perspective that can help investors remain disciplined and patient through the market's ups and downs. This patience and discipline is indispensible to investment success.
Can a financial advisor help make you a more confident investor? We believe the answer is yes. But just as importantly, a good advisor can provide true value that can be measured in dollars and cents. If you are serious about reaching your financial goals, contact us to discuss
how our financial planning can help.
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