Managing your finances may seem like a daunting and complex task, but it doesn’t have to be, especially when you’re working with the right financial advisor.
Financial advisors can help manage your finances, juggle tax implications when it comes to investments, strategize reaching your retirement goals and pay down debt, among many other priorities.
Selecting the Right Financial Advisor
Datalign, a one-on-one financial advisor matching service, can help you navigate the process of finding a financial advisor who aligns with your goals and needs. Datalign’s free, proprietary search engine matches consumers with a suitable financial advisor among thousands in Datalign’s carefully vetted network of advisory firms.
To do this, you fill out a quick, three-step questionnaire that takes just a few minutes to generate a highly tailored result.
The first step in the questionnaire presents consumers with a variety of questions that range from topics such as profession and income, to retirement plans and investment objectives.
The system then processes all of this data and its proprietary algorithm matches you with a financial advisor who is specifically qualified to help you meet your unique financial and personal goals.
The last step provides you with an opportunity to set up a call with your recommended and matched financial advisor or advisors. You are under no obligation to speak with your matched financial advisor.
Why Work With a Financial Advisor?
Financial advisors help you understand your financial situation, as well as provide financial services and advice to help you reach your goals. A financial advisor has passed certification exams needed to provide guidance on investments and financial matters, and they can help clients with a variety of monetary decisions, including saving for retirement, buying a home or investing in a business.
Picking the right financial advisor is a crucial life decision that plays a big role in deciding your financial future.
Andrew Johnson, board advisor to Datalign Advisory, puts it this way: “Selecting a financial advisor is a big decision; not exactly one that should be sourced on Yelp,” he said. “With over 50,000 Investment Advisory Representatives (IARs) in the country, it’s a daunting task. It isn’t just about finding a reputable advisor who knows the industry, it’s about finding someone whose expertise specifically complements a client’s. We make this process easier and more efficient for clients and advisors alike.”
To illustrate the importance of using a financial advisor, Datalign cited a survey that found 62% of adults admit their financial planning needs improvement. Meanwhile, the same study suggested that 66% of those interviewed noted they feel more financially secure when using a financial advisor versus 30% for those who don’t.
Furthermore, hiring a financial advisor can add an average of 3% annually to net investment returns, according to a Vanguard analysis. Investors who hire a financial advisor report being more than twice as likely as those without one to be very confident in their investment strategy, according to that same Vanguard analysis.
7 Financial Must-Dos at Any Age
As you work to decipher your financial goals and priorities, here are seven must-dos that can help you to better manage your financial future:
1. Create a Financial Roadmap
Financial volatility has become the zeitgeist of our post-Covid world. Just consider the following: Bonds, usually seen as a safe haven in financial markets, have recently (by some measures), become more volatile than stocks. Meanwhile, an inverted yield curve (when the two-year bond yield exceeds the 10-year yield, for instance), continues to signal recession. An inverted yield curve has typically signaled recession because long-term bonds typically pay a higher interest rate than shorter ones as they are deemed riskier in nature. When bond investors expect a recession, however, they sell short-term bonds, driving their yields higher (yields move opposite to prices) in favor of long-term bonds, which then turns yields on longer-term bonds lower.
Amid this potentially overwhelming uncertainty, you should work with your financial advisor to create a comprehensive financial plan that takes into account your money goals, budget, investment risk tolerance and financial strategy. This type of plan can form the road map to your financial future and help you make informed decisions about your money.
2. Manage Your Risks
Carefully assess your investment risks: This should include evaluating the risk of losing money on stocks, bonds, mutual funds or even real estate. Whether you’re a high net-worth individual (HNWIs) or just starting out in the investing space, a qualified financial advisor can help you develop a risk management strategy that is appropriate for your unique circumstances.
Meanwhile, those who are starting to plan for retirement can also benefit from understanding the so-called Sequence of Returns Risk. This term refers to the risk that market declines in your early retirement years, paired with ongoing withdrawals, could significantly reduce your savings portfolio’s longevity. Sequence of returns risk has become increasingly relevant because of the historic stock market volatility witnessed in 2023, which has seen many people withdraw funds. To avoid this scenario, you should work with your financial advisor to save early in your career. This can help you benefit from compounding interest on saved funds and bolster your future income.
3. Take a Look at Tax Planning
Everyone, regardless of their income bracket, should consider Uncle Sam when planning for their financial futures. Those with high net worths, for instance, must be keenly aware of the tax implications of their investment decisions. This is because different asset types, such as individual retirement accounts or IRAs, employer-sponsored 401(k)s, inherited stocks or life insurance, can carry different liabilities with the IRS.
Traditional IRAs, designed to defer taxes on investment earnings to maximize retirement savings, have a complex tax treatment, for example. If you withdraw money from your IRA before you are 59-and-a-half-years old, you will pay a 10% penalty, unless you are withdrawing under a few set exceptions. Other assets may be easier to negotiate with the IRS, such as life insurance policies, where benefits are generally not taxable.
Whatever you are dealing with, working with a qualified financial and tax advisor will help you ensure you benefit from any and all available tax breaks and incentives linked to your investments.
4. Don’t Forget About Diversification
Diversifying your investments into different asset classes can help boost gains and minimize losses.
Depending on your risk tolerance (essentially the level of future market or economic uncertainty you are willing to stomach), you can buy stocks, bonds, exchange traded funds (ETFs), real estate and/or commodities such as gold. With stocks, you can purchase growth or value stocks. Growth equities are those investors choose because of their strong future earning; Value stocks refer to companies that appear to be undervalued in the market. The two styles can complement each other and help you diversify your portfolio. You can cast the net wider by investing in U.S. versus international equities.
Real-estate investing, such as holding and managing rental properties, can also help you diversify your investments and provide a stable source of income as real estate is usually less volatile than stocks. If you don’t want to manage your own properties, you can consider real estate investment trusts or REITS. These publicly traded entities own a diverse pool of income-producing real-estate such as commercial properties, apartment buildings or hotels.
5. Talk to Your Financial Advisor About Retirement Planning
As mentioned before, the sooner you start saving the better. This is because you will have more time for your money to grow through compounding interest and tax deferrals. Compounding interest is when you earn interest on your saved funds plus the interest they earn over time (basically interest on interest). For example, if you invested $5,000 at age 25 at a 5% APY you would have $37,000 in 40 years or at retirement age. However, if you waited to invest that same sum at age 50, you’d end up with $10,570 at age 65.
Make retirement savings your priority as soon as you can by opening a 401(k) through your employer or Roth IRA, and start contributing to it.
Your financial advisor will be able to help you estimate your financial needs in retirement, and they’ll help you create a plan to get there, with goals you can stick with.
Remember: You may need to have 70% to 90% of your annual pre-retirement income saved per year to maintain your standard of living when you stop working, according to the U.S. Department of Labor.
6. Consider Life Insurance
Life insurance typically provides an income for your loved ones when you pass away, providing them with a monetary safety net. This death benefit can cover your final expenses, such as your burial and funeral service. More crucially, however, it can replace years, even decades, of future income and even pay off your mortgage.
7. Estate Planning
Planning an estate – or the sum of all the things you own – and how this will be divided among your inheritors in the event of your death or disability is key to successful financial planning, especially if you have significant wealth. This can help ensure assets such as houses, cars, debt or even life insurance are passed to the correct people and protected from surprise taxes. Estate planning also calls for making a will or legal document instructing how your property will be distributed after your death. If you are a high net worth individual, it can help to establish a trust to ensure your assets are distributed quickly and in an orderly manner, avoiding an often cumbersome court process.
“Let’s say I have $10 million in a bank account. If I have a will to pass this wealth, it will have to go through a probate court,” says Mallon FitzPatrick, managing director and head of wealth planning at Robertson Stephens.
This court-led process can take up to a year and suffer delays as different relatives could suddenly make a claim for all or parts of that sum.
“If I put my assets in a trust, the process avoids court-related issues. It’s smoother and distributed to the heirs immediately,” FitzPatrick says.
Whatever your goals, a financial advisor can help you make sense of financial markets and help you achieve your financial goals.