With the rise of free online trading platforms and investment apps, more people are choosing to manage their own finances and investments instead of using a traditional financial advisor. However, going the do-it-yourself route requires asking yourself some honest questions first. After all, you’re not as objective as you think. And your own shortcomings are something to be vigilant about, especially when it’s your money on the line. Here are the important questions to ask yourself to evaluate whether you have what it takes to truly be your own financial advisor.
Ask these questions before being your own financial advisor
What are your financial goals?
Before making any investment decisions, you need crystal clarity on what you want to achieve financially. Do you want to save up for a down payment on a house? Retire early? Pay off debt? Build an emergency fund? Make sure you have specific short- and long-term financial goals mapped out.
How much time can you devote to managing your finances?
Effectively managing your own finances and investments is a time commitment. Are you willing to carve out time to read financial resources, research investments, monitor your portfolio, etc.? If not, you may want to work with a financial advisor who can afford to dedicate their time and expertise.
How much experience do you have with investing concepts?
Before going completely solo as an investor, you need working knowledge of concepts like asset allocation, diversification, the difference between stocks and bonds, and more. If these sound foreign to you, start reading up before making investment choices.
How comfortable are you taking risks with your money?
Managing your own investments means you have to determine your own risk tolerance. How would you react if the market dropped and you lost money? Can you sleep at night with a high-risk portfolio? Knowing how much risk you can handle will guide what types of investments you choose.
Will you stay disciplined and stick to your investment strategy?
There’s a lot of very human behavior that separates us from the robots—good for humanity, bad for making money. It can be tempting to make rash investing decisions based on emotions like fear, frustration, or excitement. Being your own advisor requires the discipline to stick to your well-thought-out financial plan even when the market dips or soars.
Answering these key questions honestly will determine if you have the knowledge, time, risk appetite, and temperament required to invest successfully without an advisor. The DIY route gives you more control but also more responsibility. Weigh your responses carefully as you decide if being your own financial advisor fits your needs and abilities.
If you do choose to invest in a financial advisor, you should do your own research about whose help you’re enlisting. Be sure to read up on the difference between fee-based and fee-only advisors, as certain financial advisors may not have your best interests at heart. Or you may not go the human route at all, and instead choose to go robo. No matter what, when it comes to finding the right financial planner for you, the last thing you want is to get ripped off.