A recent Million Dollar Roundtable survey that found that 79 percent of Americans have never hired a financial professional, usually because they think they don’t have enough assets to warrant an advisor or they feel that they are capable of handling their finances themselves.
However, the study also found that those who do work with a financial advisor are ultimately more financially stable and confident.
Regardless of the level of your assets, working with a financial advisor can help you invest your hard-earned money more effectively, ensure you truly understand the pros and cons of various investing tools and products, and allow you to feel comfortable and confident for both planned and unexpected events down the road.
[See: 10 Questions to Ask Before You Hire a Financial Advisor.]
Here are several advantages of working with a financial advisor to consider.
Save for retirement more effectively. Advisors routinely help their clients decide which retirement plan is best suited for their needs. While most individuals should contribute to their company’s 401(k) plan if there is one available (especially if your employer offers a match), there are other retirement savings accounts to consider including a Roth IRA or IRA.
Financial advisors can also help you understand the importance of tax diversification and implement a strategy that will best manage your various plans’ tax implications. For example, accounts like a 401(k) or IRA are tax-deferred, which means that plan participants aren’t taxed until it is time to withdraw retirement funds. But Roth IRA account withdrawals don’t incur a tax penalty because contributions are made with after-tax dollars. Contributing to multiple accounts that have different tax treatments can help prepare for unexpected events and other financial scenarios.
Finally, people who work with an advisor are more likely to understand and remember the rules surrounding withdrawals. Withdrawing before the age of 59.5 will incur an additional 10 percent penalty, and conversely, you are required to begin taking out annual withdrawals once you reach age 70.5.
Prepare for the unexpected. The Million Dollar Roundtable survey found that less than half of people who haven’t hired an advisor have an emergency fund. Many people think they will be ready when an unexpected medical bill or job loss occurs, but more often than not, a personal hardship can result in a financial one as well.
When a surprising event inevitably happens, instead of panicking and shifting your assets in a way that could be detrimental to you in the long term, a financial advisor can help you evaluate the situation and tackle it in a more strategic and effective way.
[See: 10 Long-Term Investing Strategies That Work.]
Reap the benefits of investing for the long term. The past year has been one for the books when it comes to unexpected events, and many investors are now feeling the pain of panicked sell-offs or other investing mistakes they made during uncertain times. It is critical for investors to resist acting on the news of the day, and this is an area where advisors can act not only as financial professionals but also as a quasi-therapist.
Speaking with an advisor can calm your nerves and help you evaluate whether or not the market conditions will impact the companies in your portfolio. In most cases, though, investors who maintain a long-term view are rewarded for their patience down the road, so the survey’s finding that only 19 percent of Americans who haven’t hired a financial professional have a long-term financial plan is concerning.
Understand complex terminology. Results from the survey also found that many Americans who haven’t worked with a financial advisor don’t feel confident in their ability to understand complex financial terminology. In fact, only 52 percent were confident with the term “401(k)” (versus 71 percent of individuals who work with an advisor), 42 percent with ” Roth IRA” (versus 69 percent) and 31 percent with “long-term care insurance” (versus 41 percent). And of course, it is possible that some individuals who responded with confidence may not be able to define each term if asked, or fully understand the complexities.
A transparent and responsible advisor should not only guide you to which products are right for your financial goals, but also be able to help you become knowledgeable about their purpose, pros and cons, and price.
While working with an advisor does come with costs, it is often considered an investment in one’s financial future. From spotting potential pitfalls or benefits in investments, to keeping you off the ledge during uncertain times, to helping you effectively build an adequate nest egg, financial advisors can provide you with the direction you may not have known you needed and put you on the path to financial success.
[See: 10 Skills the Best Investors Have.]
Regardless of your level of assets or confidence in your abilities, it never hurts to have someone to guide you through the process.
More from U.S. News
Avoid These 8 Rookie Investing Mistakes
13 Ways to Take the Emotions Out of Investing
8 Things Not to Hide From Your Investment Professional
4 Good Reasons to Have a Financial Advisor originally appeared on usnews.com
