Why is That Person With An Advisor and Why Will People Make Better Financial Decisions?

Everyone has their own goals in life. If you look at two individuals’ financial standings, you’ll often find that the person with an advisor will make better financial decisions.

Why?

In life, you hire experts to help with everything:

  • Starting a business
  • Taxes
  • Legal matters
  • Plumbing
  • Electric 
  • Buying a home
  • Etc.

Now, ask yourself this question: why would you not hire a financial advisor to help you guide your finances? If you want to reduce the risk of making bad investments or overlooking costs when moving into retirement, a financial advisor can help.

These professionals guide you to make better financial decisions.

Let’s look at some of the facts as to why the person with an advisor will have an easier time reaching their goals.

4 Reasons Why You’ll Make Better Financial Decisions With an Advisor

1. Advisors Can Add 3% in Annual Returns

A major study from Vanguard Group looked at the actual returns that a financial advisor offers over someone that isn’t using an advisor. The report suggests that everyone’s financial situation is different, but the average return each year for someone using an advisor was 3% higher than for someone without an advisor.

If 3% seems insignificant to you, think about it in concrete figures:

  • The average 65 – 69-year-old has $206,000 in retirement
  • An advisor adds an additional $6,200 in return annually

Ideally, you’ll have more in retirement than the figure above, but that is the average in the United States. The additional $6,200 each year is more than enough to cover a new car payment, utility bills, go on a trip, etc.

When you make better financial decisions, you have less financial worries.

However, there are other reasons why someone with an advisor will make better decisions and have an easier financial future.

2. Smart Asset Allocation to Leverage Better Taxation

The value of a financial advisor doesn’t just stop at investing. You may be an investing guru and think the only value an advisor will offer is a boost to investment portfolios. Unfortunately, you would be very wrong and miss out on great ways to keep more money in your pocket.

For example, you may put up to $20,500 per year in a traditional 401(k).

Your employer encourages contributions and thinks you’re doing the right thing. Plus, you can deduct these contributions and save money each year. However, a financial advisor may come along and recommend converting to a Roth 401(k).

Why?

  • A Roth account pays taxes now
  • You lose annual deductibles
  • BUT your money grows tax-free

Based on your tax rates today, you may want to pay taxes now and let your money grow tax-free. This way, when you take withdrawals in retirement, you won’t have to pay money in taxes.

Now, converting to a Roth 401(k) is not right for everyone. An advisor can help you by creating proper asset allocation so that you never have to pay excess money in taxes.

3. Regular Financial Monitoring

One mistake that individual investors make is that they often don’t revisit their finances regularly. For example, let’s assume that you put your money into 100% stocks and you’ve enjoyed great returns.

However, you’re not really watching the markets because everything has been going smoothly.

The market takes a dip, and suddenly, you’ve lost 25% of your portfolio value overnight. If you have plans to retire soon, they can be derailed entirely because losing money in the market is much faster than earning money.

It can take years to recover from a significant portfolio loss.

An advisor that has a pulse on the market will notice key indicators that there’s a financial bubble occurring and take measures to safeguard your investments. Additionally, the advisor will review your finances and make recommendations when major life events occur, such as:

  • Marriage
  • Divorce
  • Death
  • Childbirth
  • Buying a new home
  • Losing a job
  • Etc.

If you’re working a traditional 9 to 5 job and have a social life and hobbies, it’s difficult to stay on top of your finances in the same way that a dedicated financial advisor is able to.

4. Advisors Remove Emotions from Finances

You work hard for your money. If the markets fluctuate, as they do, it’s difficult not to be filled with emotions. Sadly, emotions are not your friend in the financial world because they’ll cause you to make decisions that can:

  • Cost you money
  • Lead to smaller returns

Advisors can help you keep emotions out of your financial decisions to ensure that the actions you take all make sense. For example, if the market dips on missed estimates, your advisor can help you remain calm and provide sound advice on the next steps to take.

If you have no experience in the financial world, you simply won’t know what steps to take when suffering from an emotional hit, such as losing 10% in the market.

Alternatively, you may hear of a “once-in-a-lifetime opportunity,” and your advisor can help you understand the risks and upsides of this opportunity.

One thing that is important to know and understand is that your relationship with an advisor must be strong. You have to respect your advisor and be comfortable with saying “no” to one of their recommendations. With that said, your advisor should be comfortable enough with you to also push back and say: you’re making a bad decision.

Your advisor is meant to advise you, and if you don’t want them to invest in crypto or bonds, then they won’t.

However, you should always consider the advice given and work with your advisor to meet and even exceed your financial goals.

Wrapping Up

Working with a good financial advisor will guide you to smarter, less risky financial decisions in life. Your advisor will help you make the decisions necessary to reach your goals and have money in retirement.

If you’re investing money or simply not hitting your financial goals, it’s time to sit down and analyze why.

Often, when you’re working with an advisor, they’ll help you stay on track to reach your goals, remove emotions from the equation, and recommend smart choices that you may not have made on your own.

To learn more about how KPN Enterprises can help you make better financial decisions or to schedule a call, contact us here.