As we count down to the end of 2019, most of us are probably taking stock of the year that was and reviewing how our investments have performed this year. This is also an opportune time to determine if we need to adjust current plans or to rebalance portfolios to achieve financial goals.
What a year it has been! With the uncertainty of the US/China trade war, the ongoing Brexit debacle, the Reserve Bank of Australia’s (RBA) decision to cut rates to a record low of 0.75% and flagging consumer confidence levels, amid many other events, it is certainly a surprise to note that the ASX is up 20% (at time of writing), since the first opening bell of 2019.
It is particularly during these periods of market volatility and ongoing uncertainty where investors see the value of an adviser’s alpha, or added value.
A term coined by Vanguard’s US business in the early 2000s, the framework highlights that the value of good financial advice is much broader than investment selection. It presents tangible strategies to help advisers strengthen their client relationships and define a unique value proposition.
It discourages advisers from basing their value proposition around market timing and their ability to pick the best-performing securities. It encourages the adviser to act as a wealth manager, financial planner and behavioral coach, providing discipline and reason to clients who might sometimes be undisciplined and emotional.
In times of market shocks, an adviser’s experience and stewardship can be particularly valuable to clients because left alone investors can make choices that impair their returns and put at risk their ability to achieve their long-term objectives.
So here are four reasons you should engage a financial adviser:
1. You are a normal human being with emotions
Humans are governed by emotions and it is not surprising that the process of investing can often evoke strong emotions. Abandoning a planned investment strategy can be costly. Equally, holding on to an asset (such as a first home) that was purchased during a particular time in life, even though it makes more sense to sell it, could have a financial cost.
A good adviser will be a behavioral coach of sorts, act as an emotional circuit breaker and help you stick to a disciplined approach to investing.
2. You keep a watchful eye on market commentary and review your investments on a daily basis
The convincing nature of daily market commentary can tempt even the most seasoned of investors into diverting off course, but the truth is that performance-chasing behavior is often detrimental to overall returns. Time and again, many investors exit the market following a period of volatility but reinvest too late to capture any meaningful benefit.
The reality is, investment success is more often driven by time in the market and not timing markets. A good adviser will help you tune out the market noise and support you in maintaining long-term perspective.
3. You don’t have specific investment goals
For many, the biggest long-term financial goal is to save enough money to retire. But that is a broad goal and needs to be defined properly before we can set our investments to work to achieve that goal. A good financial adviser will assess your circumstances and constraints and work with you to define your unique short, medium- and long-term financial goals.
A responsible financial adviser will also set out the risks that your investments are subject to, and create a plan to mitigate them, whilst still achieving your goals.
The value of a good financial adviser often shines through during the process of portfolio construction. The provision of a well-considered investment strategy and asset allocation that is balanced, diversified and meets a client’s goals, is an important way in which advisers add value. Further, the knowledge that the specific asset allocation was a result of careful consideration and not happenstance often serves as an emotional anchor during the spikes of panic in the markets.
A good financial adviser worth their salt will also help you continually redefine your goals and rebalance your investment portfolio as your circumstances change.
4. You may not be sure of all your tax implications
The tax implications of the entirety of our investment portfolio are often an afterthought even for the most sophisticated of investors. Taxes, like costs, inevitably diminish a positive return. A tax-conscious financial adviser will understand the inter-play of the tax implications of each asset class and employ tax-efficient strategies in the construction of an entire investment portfolio.
For some investors, value of an advisor could be difficult to quantify. For others, the lack of confidence to handle their financial matters, time or willingness could mean that working with an adviser buys peace of mind.
But ultimately, it is up to the adviser to convince you that their value is real, and that their value represents more than a number on a client statement.
Daniel Reyes is Principal, Investment Management Group at Vanguard Australia, a sponsor of Firstlinks. This article is for general information purposes only and does not consider the circumstances of any individual.
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