Like many, you may think financial planners just pick stocks that will, hopefully, outperform the rest of the market. However, financial planners do much more than trade your stocks. Instead, they set up a short- and long-term financial plan for you, including helping you deal with taxes, prepare for retirement and teach you about markets and finance.
The most significant benefit of working with financial planners or analysts is that they customize your plan to your needs. For example, financial planning for professional athletes will differ significantly from other fields because these individuals tend to work at a high pay for a relatively short amount of time. In addition, individuals who inherit or receive large one-time payments will have different needs. A great financial planner has experience in your field, understands your needs and is able to customize your financial plan to fit those needs.
If you are like most people, you don’t like to pay taxes, and you may search for ways to minimize the taxes you pay. Working with a reputable financial planner is a great way to minimize your taxes. They will help you determine which financial assets are best for your situation. For example, will you pay taxes up front and invest in a Roth IRA, or will you invest in a traditional IRA and pay taxes when you take your money out at retirement? Your financial planner will also guide you on the amount you should contribute to each of your retirement accounts, including your 401(k), to reduce your taxes over time.
Financial planners understand risk, and it is their job to mitigate your risk. Your first meeting with your advisor may include determining the level of risk you are comfortable with. For example, if you are young and just starting your career, you may be ok with high-risk investments, but those closer to retirement age typically seek lower risk. These professionals will also help you diversify your portfolio to improve your risk position.
Because your financial analyst is somewhat distanced from your portfolio, this professional will rarely, if ever, make an emotional decision. Yes, they watch the markets and choose investments based on the best information they have, but they will not react to volatility or geopolitical and economic concerns without carefully weighing their financial impact. These individuals follow the data and use logic in any trade decision.
If you are planning for your financial future, don’t go it alone. Work with a reputable financial planner.