Most people can sufficiently manage their own finances, up to a point. The goal is to recognize when it’s time to hire an advisor to avoid costly mistakes or missed money-saving—or money-making—opportunities.
Here are five signs that it might be time to hire a pro:
1. Things are getting complicated. For many people, finances get more complex as they get older. As their careers advance, earnings rise, and families grow, they take on more investments and have varied financial needs and aspirations.
“You may have been fine without an advisor when you were just investing in your retirement account through your employer,” says Michael Finke, a professor of Wealth Management at the American College of Financial Services. “But when you have a taxable account, college savings goals, insurance questions, maybe a small business, there comes a time when it can be too much to handle alone.”
A good advisor can tie together all pieces of your finances into a cohesive plan to meet your short- and long-term goals, while mitigating risk and maximizing your savings and investment growth.
2. You have multiple scattered accounts. People tend to accumulate investment and bank accounts as they move through different jobs and life phases.
That can present three major downsides: You may be paying unnecessarily high fees by maintaining a number of accounts; the more investment accounts you have, the more likely you have overlapping investments that can expose you to more risk or be a drag on your returns; it is harder to keep track of the tax implications of your investments.
Reviewing and figuring out how to best consolidate accounts can be time-consuming and may not be your idea of how to spend several Saturday afternoons—but it is business as usual for an advisor.
3. Changes in family or career have financial implications. Life is a series of milestones, many of which can bring serious financial changes—for better or worse. If you have a new child or an elderly relative moves in with you, you face more financial obligations. A new higher-paying job with better benefits creates opportunities to accelerate your path toward your goals or to make changes in your lifestyle.
Whether a milestone challenges or improves your financial situation, an advisor can help create multiple scenarios for how to meet your goals and then analyze each of their chances for success based on varying portfolio returns and your spending and savings patterns.
4. You have a sudden influx of wealth. An inheritance, a big bonus, the sale of your business—major liquidity events may be great news, but they also raise many questions about how to make the most of the newfound wealth. Careful planning to minimize taxes, establish new goals, and allocate assets within an investment portfolio can help maximize how much you will benefit from a cash event over the long run.
5. Retirement is around the corner. Looking ahead to retirement can feel daunting. Do you have enough saved? How much income can you count on? How should your investment portfolio be allocated? What life changes could help stretch a nest egg? Should you move to a lower-tax state?
While you may have successfully navigated the challenges of accumulating assets during your working years, you will face a whole new set of challenges in retirement: You have to figure out how to have a comfortable lifestyle without depleting your nest egg. By running simulations of thousands of scenarios, an advisor can demonstrate the chances of your nest egg lasting based on different factors, such as how much income you live on each year and the stock market’s pattern of returns.
If an advisor helps avert just a couple of mistakes in how you manage your retirement plan, that can make a big difference over the long term. Financial mistakes are almost impossible to make up for when you are drawing down assets from your portfolio and no longer adding fresh savings to your growth investments.