Do you remember the game Monopoly? This famous board game has been called the most popular game in history. Why? Because it allows people to get rich without the risk of losing any money. After all, you can afford to take a chance on some property when you know you can always take more money out of the box.
Unfortunately, some people treat real money like a game of Monopoly. They think they have the skills and knowledge to become wealthy by buying and selling stocks and mutual funds on their own, without the help of a financial professional. But unlike the board game, the stakes are a lot higher than having to pay a poor tax of $15. Here are eight reasons why you are better off getting help with your investment portfolio.
1. You’ll Act on Emotion
Let’s face it: Our emotions can cause us to make really stupid decisions. That’s why people hop on a plane for Las Vegas, thinking they’ll beat the house odds! Emotions can also get you in trouble when it comes to your investments. It’s easy to freak out and pull your money out when the market takes a nosedive or to get antsy when your portfolio isn’t performing as well as you want it to. You might try to time the market (it doesn’t work) or chase a hot tip you heard on the radio (that doesn’t work either). An investment advisor is the voice of reason when your emotions get the best of you—and they will at some point.
2. You’re Not That Good
If you’re buying stock, then someone else is selling that stock—and only one of you can be right about how that investment will likely perform in the future. And you’re usually buying stock from a large brokerage company. What are the chances that you’ll know more than they do and make money on that stock? About as likely as winning the lottery. Neither approach is a smart way to invest. Unless you have an advance degree in finance, your best option is to talk with someone who does.
3. You Don’t Have Enough Knowledge
You don’t have some inside scoop or secret that will allow you to beat the market, no matter who you know on Wall Street. In fact, if you hear the phrase “investment opportunity,” you should run far and fast in the opposite direction. You may have some knowledge about some aspects of the financial world, but you probably don’t have enough knowledge about lesser-known aspects of investing. If terms like “price-to-earning-ratios” or “returns on tangible capital” make your head spin and your eyes glaze over, then don’t manage your own investment portfolio.
4. You’re Overconfident
Research says that most people overestimate their knowledge and skills. Sure, you know how to reconfigure your computer! Or fix your car. Sure, you know how to help your daughter with her calculus homework. Yeah, right! That same overconfidence spills over into your finances—even when it comes to investing.
Here’s the problem: Everyone can’t be above average at knowing the ins and outs of the financial world. When compared to investing professionals who’ve had extensive education and training in this particular area, you probably won’t come out as above average. Unfortunately, if you don’t know your own strengths and weaknesses, that overconfidence will catch up with you and you’ll pay for it—literally.
5. You Don’t Know the Best Tax Strategies
Even if you’re a junior pro when it comes to investing, chances are you’re not a pro in tax treatment and strategies. Investment pros know the best approaches to this potential landmine, especially since tax laws can change drastically from one year to the next.
6. You Can’t Protect Your Older Self
I don’t mean to offend you in any way, but research confirms what you’ve probably seen in your own family: The ability to make wise financial decisions declines dramatically as you get older. The problem is that your confidence in your abilities doesn’t decline, which leaves you open to a whole host of investing mistakes, including being the victim of scams and fraud. A good advisor will have your back and will protect you from yourself when you’re on the verge of making a bad financial move later on.
7. You Don’t Have Connections
No, I’m not talking about networking or stock tips. I’m talking about knowing people in other professions that deal with money. Listen up: Investing is only one aspect of planning for retirement. You also need to take steps to protect your money, which involves specialists in other areas, including estate planning, wills and trusts; long-term care; health and life insurance; and accounting and tax issues. Even if you’re good at investing, you still need other people on your team to protect the gains you make, and an investment professional will know who you can trust.
8. Your Life Will Get Complicated
Sure, when you’re young and just starting out in life, you may have the time to keep track of your investments and make adjustments when you need to. But eventually, life will get crazy. I know—I’m raising three boys!
Major life events like illness, children, or a death in the family can send your schedule and your mindset into a tailspin. As a result, you’re likely to forget things, let things slip through the cracks, or simply make mistakes. Unfortunately, your retirement planning could be one of those areas to get neglected. Having an investment professional eliminates that possibility. Even when your world is crazy and you don’t have time to think about your investments, your financial pro will still be working!
You’ll see lots of web articles about how it’s easy to manage your own investments and how you can beat the averages and the professionals. Let me ask you a tough question: Do you really want to take that chance? Your retirement is on the line and your family legacy is at stake. I don’t know about you, but I don’t want to take those kinds of risks. My financial future is too important to manage by myself.
So is yours.