Five Biggest Mistakes of Not Hiring an Investment Advisor

You are more likely to buy high and sell low.

Countless studies have shown, many investors trail market returns as they mistakenly rely on the news cycle for investment effectiveness. This compels investors, excited by the media hype, to enter the market when the market is already at record highs.  The same media frenzy also increases the chances of selling in a panic when markets begin to decline.  One of the most important services an investment advisor offers is managing your emotions and providing you with the confidence to stay the course, even when the market makes a correction.  For instance, investors who panicked and exited the market following the 2008 crash entirely missed the 2009 bull market.

You are likely to neglect the most important component of a portfolio, risk mitigation.

Investment advisors are concerned with choosing portfolio managers based on their historical effectiveness of managing risk in relation to return.  Investors often analyze funds and their managers solely on past returns, neglecting the element of risk.  Anyone can easily purchase the S&P 500, in fact, many retail investors who come to our office believe this is an effective strategy.  When the market is up, indexes can perform exceptionally, but when the market drops, there are no protective measures in place.  Investment advisors are not just looking to take advantage of market upside, but they are just as concerned about market downturns. While all portfolios carry risk, investment advisors want to maximize return for the required minimum amount of risk.

Investors can neglect important tax planning and management strategies by liquidating positions without a plan.

Investment advisors are on the frontlines to maximize tax harvesting strategies.  Oftentimes, investment advisors coordinate with your accountant to make sure your investment transactions are as tax efficient as possible.  While investors are concerned with the taxes they pay in April, most individuals do not understand the different tax rates applied to various types of accounts and holding periods.  This can result in causing unwanted tax liabilities.     Also, if you are a client with complex tax issues or carry forward losses, there are strategies that investment advisors can implement to minimize your tax gains.   It is important to evaluate potential taxes you may pay and coordinate strategies.

You may not invest with a comprehensive strategy.

Investors often have numerous investment accounts holding a selection of investments based on the information available at the time.  Investment advisors evaluate goals and objectives, then develop a holistic strategy across all your accounts.

These are some common mistakes investors make thinking they are diversifying:

  1. Mistakenly purchasing the same asset class in varying accounts.

    While it may seem like you are diversifying, many funds in the same asset class have similar holdings.  It is important to ensure that the funds you are investing in have different underlying investments and are diversified based on your target risk.

  2. Timeline is often not meaningfully considered.

    Investors often have different accounts earmarked for a variety objectives.    For instance, if are saving for retirement, you will likely employ a more aggressive allocation than if you are saving for a house purchase in the next year.

Not wisely employing time management.

When it comes to productivity, focusing on what you do best and what you enjoy doing is key.   To achieve this goal, it is integral to delegate tasks to professionals who not only are experts in their field, but enjoy the work they are doing.   As an investment advisor I am here to tell you, managing money is a full-time job.  If you already have a job earning the monies you want to save, how much time on the weekends and after work, away from your family and other priorities are you willing to give up?

Many of my clients manage their own assets with my guidance, and some of them I assist directly.  Contact me to find out more about your options and what is most cost effective and efficient for your needs.

Author: Jenny ErdmannJenny is owner of Chisholm Financial Planning & Investments. She loves discipline, freedom, America, and financial planning. When not working with clients, she can be found enjoying sunshine and freedom with Lucy, the best dog in the world and Chisholm's mascot.

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