According to a study conducted by benefit consultant Aon Hewitt and advice firm Financial Engines, investors who did not use the help of a financial advisor tended to underperform with their investments.
The study looked at the 401(k) returns of more than 425,000 savers from 2006 through 2010, and found that the median annual return of those who got professional help was almost 3% higher than the return for those who invested on their own, even after taking fees into account.1
Why Did Investors Without a Financial Advisor Underperform?
According to the study, one of the reasons for the performance gap was that the investors who self-managed were far more likely to be too aggressive or too conservative, instead of a diversified balance of the two.
Emotions also played a role, as self-managers were more apt to cash out of stocks in the 2008 crash, causing their returns to lag substantially when the market rebounded in 2009.1
This highlights the importance of having an investment plan in place to help guide your decisions and keep you on track.
How Hiring a Financial Advisor Can Help
When investors choose to manage their portfolio on their own (often for the sake of saving fees), they are forgetting a potentially big expense: the opportunity cost of not having an investment plan.
Additionally, a self-manager may not have anyone to speak to for sound and unbiased advice. In that case, a financial advisor can provide professional advice in accordance with the investment plan and your risk tolerance.
An investor who chooses to self-manage may also not receive adequate investment planning advice, which should be an important part of how a portfolio is ultimately structured. If an investor doesn’t manage their portfolio with their long-term retirement income needs, tax considerations, and estate planning needs in mind, it could impact their ability to reach their goals.
WrapManager Can Build You an Investment Plan
At WrapManager, we recommend money manager strategies to our clients as part of their investment plan. However, we believe it’s important to first look at an investor’s entire financial picture before determining what investments make sense, and we go through that exercise free of charge.
If you would like to speak with one of our Wealth Managers to have us analyze your financial picture relative to your long-term objectives, please give us a call today at 1-800-541-7774. You can also get started by answering a few brief questions here.
Sources:
1 CNN Money
