Do you need a financial advisor to properly invest your money?
The answer depends on number of factors:
* first, it depends if you have time and skills (or willingness to build up the skills) to invest
* second, if you are already invested, then it also depends on how complex your finances are and how do you feel (good/bad) about your current investments
What does a financial advisor do
A financial advisor is an expert professional capable to assess your financial situation, help you set relevant financial goals (say to buy a house, pay college tuition or just grow your savings) and develop a plan to get there.
Potential tasks:
Watch out that financial experts are like sport champions: like good tennis players or basketball stars, some advisors are experts on specific areas such as tax or insurance, while others will know how to invest (which is what matters to us here).
Type of advisors
First, there are "normal" financial advisors (=people).
In-person advisors will perform some of the tasks listed above and will meet with you periodically, managing your emotions, eventually meeting your family and often building a personal relationship of mutual trust that in some cases end up with warm friendships (or not).
By the way, going forward we will merge the definitions of financial advisor or private banker, considering them broadly the same for the purposes of this article.
Second, there are robo-advisors.
Robo-advisors are online services - often offered by reputable investment firms already managing money in active or passive funds - that build and manage portfolios of low-cost investments. Your designed portfolio should be suited to your declared financial goal with a product mix determined by a computer algorithm.
In some regions, such as the US, is becoming popular to start with a robo-advisor and then add a human advisor later, if needed.
Working with an advisor
Whatever the advisor type, you should do the following:
Can you share your financial situation with transparency? That's absolutely key, or it won't work.
Costs
Robo-advisors will typically charge low fees in the range of 0.1% to 0.5% of managed assets, with our without an annual subscription, while human advisors will tipically charge 0.8% - 2% of your income under management, depending on the country of reference.
Pros and cons of working with an advisor
An advisor brings three key advantages:
There are some disadvantages too:
For a more spicy take on why advisors may not work well for you, see this article and this other one too.
Portfolio management
Reflecting on our multi-annual market experience, we have met some advisors or private bankers who are genuinely top notch.
They have their client interest at hearth and are really knowledgeable about financial markets, both in general terms - such as managing human psychology well and understanding market mechanics, thanks to several years of experience - or in specific details - such as knowing what scenarios can play out in the next three months in several asset classes.
But many others struggle to follow the day-to-day of markets to properly capture which are the best investment vehicles for specific market environments, or eventually just fail to adjust investment portfolios when the economic cycle turns. In fact, this is a key issue for us: setting up good investment portfolios on day 1 that remain static over time and thus lose their fit-for-purpose as the economy - and markets - change.
The end?
You have now some tools to think about what's best for you:
Here at Monetharia we are building an investment portfolio, powered by a human investment team and artificial intelligence, capable to observe and interpret what scenarios markets are pricing-in at any moment. Macro-driven on the long term, and focused on momentum trading on the short term, the dynamic portfolio is capable to adapt to any market condition.
In summary, we are building a dynamic asset allocation engine that continues to chase the best market opportunities, or stay away from major issues.
Imagine the initial experience you could have with a robo-advisor (low fees, online relationship, intuitive goal setting), adding then an incredibly more powerful investment engine with a dynamic (not static) asset allocation.
Yeah, we are excited too.
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Suggested books on the fundamentals of investing
via Amazon.es
Educacion financiera avanzada partiendo de cero
via Amazon.com
The little book of common sense investing
All pictures are sourced via pexels, unsplash or freepik
