Should You Invest Your Retirement Savings on Your Own or Should You Hire an Investment Advisor?

Updated on April 21, 2020
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I've been investing since I was 16 and have accumulated over 20 years of independent investing experience.

Deciding How to Manage Your Money Can Be an Agonizing Decision

I started investing when I was 16. My father was an executive in a leading pharmaceutical company. Every now and then he would show me his company's stock symbol in the newspaper. I've always been fascinated with numbers and statistics, so seeing all those and ratios and figures in the daily pages of the Wall Street Journal started my fascination with the stock market. This was also the 1980s when America was riding high under the presidency of Ronald Reagan and movies like Wall Street and shows like LA Law made it cool to be a money-hungry business mogul.

I bought my first share of stock in 1994 and have been active in the stock market ever since. In 2018, after over 20 years of doing all the research, trading, analysis, and trading on my own, I decided to move my money over to a financial advisory firm. This decision weighed on me heavily emotionally. On the one hand, I was placing my money with a reputable firm with enormous resources who could provide me with access to insightful information. On the other hand, I felt that giving my money over to a third party was somehow an admission that an activity that I'd taken great pride in for half my life was now out of my league. I decided to write this article to help all those people out there who may be struggling to decide exactly how to manage their retirement fund.

Three Things to Compare When Deciding Between Independent Investing and a Financial Advisory Firm

I define independent investing as investing without the aid of a financial professional. Independent investors do their own research, make their own decisions, and make their own trades. Below I discuss three factors to consider when deciding how to manage your money.

1. Cost

For independent investors, costs have never been lower. Over the last couple of years, brokerage firms have engaged in a price war in an effort to attract cost conscious customers. Investors can now execute stock trades for as little as $5. Many companies even offer hundreds of trades for free just for opening up an account.

In addition, fees for mutual funds and exchange-traded funds are extremely low. Fidelity Investments recently became the first company to offer mutual funds with no expenses. This means you can buy shares in a managed fund for free. There are many other investment products that charge very low expense ratios. For example, the Schwab US Broad Market ETF charges an expense ratio of 0.03%. That means you pay 3 cents in expenses for every $10,000 you have invested. If you're a very smart and savvy investor, you can make a lot of money without having to pay much out of pocket.

When you invest with a financial advisory firm, you will pay significantly higher costs than if you invested on your own. My investment advisory firm charges $50 per stock trade. For mutual funds it charges between 1 and 3% for every purchase. It charges nothing to sell mutual funds. There is no doubt I will be paying significantly more in expenses with a financial advisor.

While I may be paying more in expenses to the advisor, I do receive some benefits in return. I get access to institutional-share classes of highly-rated mutual funds. Institutional-share classes cost significantly less than other share classes so they are cheaper over time. They usually have very high minimum investment amounts ($1 million or more) but that requirement is waived since I'm investing through a firm. I also have access to detailed analyst reports from both the advisory firm and other companies like Morningstar. I also have the ability to consult with an advisor when needed.

If cost is the most important factor to you, than you would want to go with individual investing. If you are willing to trade cost for other benefits, than the advisory firm might be a good fit.

2. Knowledge

Today individual investors have more access to information that at any time in history. I can remember needing to go down to my local public library to gain access to the Value Line Investment Survey. Now all of that and more is instantly available on the internet. Sites like Morningstar, CNBC, and Bloomberg offer all of a company's financial data. For a small fee, investors can gain access to various newsletters and analyst reports. It is, however, up to the individual investor to do their own research to find the right opportunities and determine when to buy, sell, and hold.

My investment advisory firm offers several detailed analyst reports from both their investors and other third party companies at no cost. I can go to their site at any time and access these reports. I can also call up my advisor at any time to ask my advisor specific questions. The main difference between the independent approach and the individual approach is that my investment advisory firm analyzes the information and presents me individualized ideas.

If you have confidence that you can peruse information and make informed investment decisions, than the individual approach is a good one. If you like to consult with people and don't have the time or ability to analyze investments than the professional firm may be better.

3. Risk Tolerance

When you are an individual investor or investing through an advisory firm, all the risk is borne by you. No matter who is managing your money it is still your money. When deciding how to invest, you need to manage how you react when the market goes south.

If you were invested in 2008 when the market was in a major meltdown, you might have been watching your portfolio decline significantly. The S&P 500 declined 50% in 2008 alone. Any person watching their retirement savings decline like that might have been tempted to throw in the towel and get out of the stock market entirely. If you had been with an advisory firm in 2008 you would have a trusted confidant with whom you could have consulted to help you navigate through those difficult and uncertain times.

Tolerance for risk is dependent on the individual. If you can tolerate losses on your portfolio without panicking than the individual approach might work. If you would like a trusted confidant to help guide you through than the professional firm would be better.

Summary Comparison of Individual Investing Versus Using a Financial Advisor

Type of Investing
Risk Tolerance
Much cheaper but investment choices may be limited
Can access a lot of information either for free or at little cost
Born independently by the individual investor. Individual will need to rely of their personal belief's and strategy during tough markets
Financial Advisor
More expensive but will have access to more high quality invesment products
Have access to detailed analyis reports as well as a professional advisor who can provide guidance or act as a sounding board for ideas
Have experienced invesment professional to provide counsel during down markets and when considering riskier investments.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.


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