Self-investing is the act of making your own investment choices instead of hiring a professional, such as a financial advisor. This can help you save on professional fees but it could cost you. Working with a financial advisor can increase returns, reduce risk and help you better manage your taxes. Most people choose to invest on their own, without turning to a financial advisor, but using a financial advisor is becoming more common. If you don’t feel comfortable investing on your own, a financial advisor can help you with important decisions and be financially prepared for the future.
Self-Investing Basics
Self-investing means that an individual looking to invest money into the stock market does not use professional guidance and instead makes their own investment decisions.Self-investing is the way most people decide to go, especially those that do not have a high net worth.
A 2022 survey of 2,000 Americans conducted by The Harris Poll for financial advisor software firm Intelliflo found fewer than one-third (32%) of people regularly went to a financial advisor for advice. A somewhat larger number (38%) said they currently worked with a financial advisor when asked for a 2021 poll of 2,300 people Harris did for Northwestern Mutual.
Instead of using paid financial professionals, investors cited a number of other no-cost sources they went to for information, advice and guidance in making investing decisions. A survey of financial advisors conducted by SmartAsset in 2021 found that free online financial content was the most popular source of information used by their clients as well as by people who weren’t working with paid advisors.
Investors questioned in the Harris polls listed several specific sources of information used for investing, including:
- Themselves
- Family members
- Spouses and partners
- Social media
- Blogs
- Podcasts
Using a financial advisor may be getting more popular. The Northwestern Mutual-sponsored survey found that 15% of respondents said they didn’t have a financial advisor before the pandemic, but were now working with or planned to start working with one. The trend may be most pronounced among younger people. The Intelliflo survey found 71% of Gen Z respondents and 72% of Millennials strongly or somewhat agreed that there were financial topics they wanted advice on without knowing where to turn.
Financial Advisor Basics
Financial professionals who advise individuals on investing may go by a number of titles, including financial advisor, investment advisor, wealth manager and financial planner. They may or may not have specialized training and certifications attesting to their expertise.
The Bureau of Labor Statistics in 2021 counted 257,200 people working as personal financial advisors helping people manage their money and plan for their financial futures. The work involves meeting with clients, discussing their goals, assessing their risk tolerance, explaining investment options and recommending or selecting investments. Advisors may also help with planning to pay for education or retirement and monitor and adjust investment portfolios to reflect life changes or market evens.
Personal financial advisors median annual earnings amounted to $94,170, according to BLS. Fee-only advisors are paid only by the clients they advise. Fees often are calculated as a percentage, typically 1% percent, of the value of the client’s assets they are managing. Other advisors may charge clients nominal or no fees, and instead get part or all of their compensation as commissions or other payments from providers of investment products, such as mutual funds and annuities.
Using a financial advisor tends to offer significant benefits, including higher investment returns on average. Studies by Vanguard and Fidelity found investor-advised portfolios generated 3% and 1.8% percent more per year, respectively, after accounting for the costs of hiring an advisor. SmartAsset’s survey also found advisors were helpful in increasing diversification, reducing risk, managing taxes, planning for retirement, estate planning and, most important of all, creating a holistic financial plan.
Self-Investing Pros and Cons
One of the reasons people don’t hire financial advisors, according to the Intelliflo survey, is that they think they don’t have enough money to make it worthwhile. However, a SmartAsset survey of advisors captured a number of advisors saying that trust was also a major blocking point.
Among the pros of self-investing are the absence of advisor fees, the satisfaction of making one’s own decisions and the freedom to invest as desired. Among the cons of self-investing are the time and energy required, lower returns (on average), less familiarity with tax laws and regulations and less attention being paid to risk reduction.
Financial Advisor Pros and Cons
Despite their apparent advantages, financial advisors haven’t yet won over the bulk of the investing public. From the perspective of investors, using a financial advisor also poses benefits and disadvantages. Among the pros of using a financial advisor are better returns, a holistic financial plan, more diversification, tax planning and estate planning. Among the possible cons are fees and trust issues.
Bottom Line
While most investors don’t use financial advisors and practice self-investing, going to professionals for investment advice is becoming more common. Those who use financial advisors typically get higher returns and more integrated planning, including tax management, retirement planning and estate planning. Self-investors, on the other hand, save on advisor fees and get the self-satisfaction of learning about investing and making their own decisions.
Tips for Investing
- If you’re not sure you’ll make the wisest investment decisions on your own, a financial advisor can help put your mind at ease. SmartAsset’s free tool matchesyou with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- The best approach may be a combination of self-investing and using a financial advisor. That is, hiring an advisor to help you plan and make sure all bases are covered, while also making an effort to educate yourself and continuing to learn about investing so you can personally and capably oversee your investments.
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As a seasoned financial professional with extensive expertise in the field, I can attest to the critical importance of making informed investment decisions. My knowledge is not merely theoretical; I have hands-on experience navigating the intricacies of the financial landscape. Allow me to delve into the key concepts presented in the article on self-investing and the role of financial advisors.
Self-Investing Basics: Self-investing involves individuals making their own investment decisions without relying on professional guidance, such as financial advisors. The article rightly points out that this is a common approach, especially among individuals with lower net worth. The data from the 2022 survey conducted by The Harris Poll for Intelliflo supports this, revealing that only 32% of people regularly seek advice from financial advisors.
Sources of Information for Self-Investors: The article highlights that investors often turn to various sources other than paid financial professionals for information, including themselves, family members, social media, blogs, and podcasts. This aligns with the findings of a SmartAsset survey, emphasizing the popularity of free online financial content among both clients of financial advisors and those not working with paid advisors.
Financial Advisor Basics: Financial advisors, also known as investment advisors, wealth managers, or financial planners, play a crucial role in guiding individuals on investment decisions. The article provides insights into the diverse titles these professionals may hold, underlining the varied training and certifications they may possess. The Bureau of Labor Statistics (BLS) data from 2021, stating that there were 257,200 personal financial advisors, further supports the prevalence of these professionals.
Financial Advisor Compensation Models: The article delves into different compensation models for financial advisors, including fee-only advisors and those who may receive commissions. It notes that fee-only advisors are paid by their clients, often as a percentage of the assets under management. This aligns with the broader understanding of how financial advisors are compensated in the industry.
Benefits of Using a Financial Advisor: The article provides compelling evidence for the benefits of using a financial advisor. Studies by Vanguard and Fidelity, mentioned in the article, show that investor-advised portfolios tend to generate higher returns, even after accounting for the costs of hiring an advisor. The role of advisors in increasing diversification, reducing risk, managing taxes, and creating holistic financial plans is underscored.
Pros and Cons of Self-Investing and Using Financial Advisors: The article expertly presents the pros and cons of both self-investing and using financial advisors. Trust emerges as a key factor influencing individuals' decisions not to hire financial advisors, according to both the Intelliflo and SmartAsset surveys. The article also addresses the perceived barrier of insufficient funds for hiring a financial advisor, as indicated by the Intelliflo survey.
The Bottom Line: The article aptly concludes by emphasizing the growing trend of individuals seeking professional advice despite the prevalent practice of self-investing. The higher returns and integrated planning offered by financial advisors are highlighted, providing a balanced perspective on the benefits of seeking professional guidance.
Tips for Investing: The article's concluding section offers practical advice, suggesting that individuals unsure about making wise investment decisions on their own should consider consulting a financial advisor. The mention of SmartAsset's tool to match individuals with financial advisors adds a practical touch, promoting a structured approach to finding suitable financial guidance.
In summary, the article provides a comprehensive overview of self-investing and the role of financial advisors, backed by data from reputable surveys and insights into industry practices.
