Ah, if only life's important questions were so simple. Wouldn't we all like a simple, Door A or Door B, pick? Does the blog title hint at a clear cut answer? Has my almost 14 years of retirement provided me with insight on this perplexing issue?
Well, yes, and no. I do have some insight I will share. But, that insight doesn't come with an either-or choice. There are too many variables. Let me explain.
A qualified financial advisor can be a tremendous resource for you. That person should have the training and experience to understand all the choices you have to maximize your investments. He or she should understand your specific short and long term goals and your tolerance for risk.
While there may be an argument made for using a service that is not based on a fixed fee, personally I wouldn't feel comfortable knowing that the advisor's income is dependent on the commissions generated by what I end up buying. For me better is consulting with someone who charges a fee for his time and suggestions but not for everything you decide to purchase or do.
It would also be important for me to arrange for a situation where regular follow ups to check on the performance of my investments was part of the package. No one, no matter how good they may be, will always suggest things that work out exactly as planned. The world of money doesn't operate with precision. Something that seems perfect today may be wrong six months or a few years later. Having the ability to make adjustments is critical.
The flip side of this financial coin is the Do-It-Yourself approach. You know your goals and risk tolerance. By now you have the experience that tells you what investments and approaches have worked for you in the past, and which haven't. You may not know about the latest financial products and esoteric products, but that may be a good thing. Bernie Madoff proved that even seasoned professionals don't understand the ramifications of everything designed to separate you from your money.
The Internet is an amazing tool for staying educated about financial planning and investments. Of course, there is a lot of bad information available there, too. You will need to determine if what you are reading is legitimate. How? Check at least three or four completely separate sources. If all confirm each other, you probably are on safe ground.
Using the DIY approach could save you a lot of money that you can invest instead of giving it to a professional to tell you what to do. Fee-only planners usually charge a percentage of your total invested assets, or an hourly fee for their time.
So what have I done? I have chosen a mixture of the two. For almost twenty years I have teamed up with a financial advisor. Over those two decades he helped me build the financial foundation that allowed for early retirement and is keeping me feeling good about my future. In a slight departure from the caution I noted above, my planner is really a mixture of fee-based with some commissions involved. But, I trust him to not bring anything to me that is not a strong fit for my goals and personality. Because I am not an active trader he probably doesn't make much money having me as a client. At this point our relationship is closer to one of friendship and mutual trust.
At the same time I am actively involved in staying educated about the world of finance, adjusting my goals, and feeling comfortable about what appears on my balance sheet. I determine what percentage of my account I want to withdraw each year (presently less than 3%).
There are certainly a lot of people who are not comfortable in the financial world. The thought of making important decisions without guidance would be terrifying. That is completely understandable and that is where a good fee-only advisor can become your lifeline to a satisfying retirement.
But, the absolutely worst decision is turning over everything to someone else and simply trusting they have your best interests at heart. Almost as bad is to figure what you put your money in all those years ago is still doing the job for you and ignore everything.