A common dilemma that everyone faces at one time or another is the choice of whether to manage your own investment portfolio or hire the help of a financial professional. As an investment professional myself, I am biased towards seeking out help, but I’d like to share a story to help frame this decision.
When I bought my home, I was dead set on having a big yard that would allow a dog to run freely or that my kids could use to with their friends. With our bigger yard came the responsibility of cutting the grass and maintaining the lawn – something I had never done before.
Initially it took me about two to three hours to mow the lawn, but eventually I got efficient enough to finish the job in roughly 90 minutes. I always felt that the time commitment was manageable and the result was pretty good.
There were some occasions, however, where I didn’t have time to cut the grass on the weekend – sometimes due to commitments and, admittedly, sometimes due to laziness. Longer grass meant it took longer to cut the next time and the end product didn’t look as pretty. Even worse, sometimes I would put it off a day without looking at the weather, only to be surprised by three days of rain. Then cutting the grass really became a problem.
All and all, I got by just fine. My lawn looked pretty good. That is, until I saw what it looked like when a professional did the job.
The summer my son Tommy was born, I decided to hire someone by the name of Leo to cut the grass for $35 a week so that I could spend more time with my wife and newborn son. Little did I know that this would be one of the best decisions I’ve ever made.
Leo did the little things I wouldn’t have thought to do or known how to do properly. For example, he periodically changed the direction in which he cut the grass to encourage healthier growth. He fertilized and seeded strategically. He cut the grass a specific length depending on weather conditions or the area’s exposure to the sun. He edged around our flower beds and plants.
The end result was a drastically superior looking lawn, but equally important was that I had more time to focus on the things that are most important in life.
Manage Your Investments or Seek the Help of an Investment Professional
Investing isn’t necessarily rocket science, but wealth managers have tools and processes to dramatically improve your investment implementation and outcome.
Not only that, but investors tend to make a lot of behavioral and emotional mistakes that add up to dramatically worse after-tax performance. Furthermore, individual investors also don’t have the reporting or expertise to truly know how their accounts are performing.
The decision to hire a professional shouldn’t be only about investments. The focus should be on getting your entire financial house in order and keeping it that way forever.
That means choosing a wealth manager that provides comprehensive financial planning beyond traditional investment advice and retirement planning – this includes estate planning, tax projections, insurance analysis, entitlement strategies, etc.
Add it all up and a wealth manager that provides comprehensive financial planning adds significant value. Research from Vanguard estimates that wealth managers can add about 3% in relative return to an individual investor.
One argument for do-it-yourselfers is that they are saving money by not paying someone. Another is do-it-yourselfers simply enjoy managing their portfolio. These are fairly similar to the reasons that I chose to cut my grass, but the big difference is that making a mistake in your lawn has far less severe consequences than making a mistake with your finances.
Perhaps most important of all, hiring a professional frees you up to do the things you love most in life and alleviates the stress that can come from managing your financial matters.