Is It Time to Find a Great Financial Advisor?
Most of us rely on a team of experts who we get to know and trust to help augment the skills or tasks we need. For most people, especially affluent professionals, business owners, and families their trusted team of advisors would typically include a family medical doctor (MD), a certified public accountant (CPA), a lawyer and perhaps a few tradesmen such as a good plumber and auto mechanic. The value of having a trusted advisor can be immense in terms of peace of mind, avoiding problems down the road, and fixing issues that may arise.
A great financial advisor is a gap that people sometimes have on their team of trusted advisors. Just as with other members of the team, neglecting this part of your well-being and future needs can be detrimental to your wealth and overall security.
Read on below as we discuss how and when to add a good financial advisor to your team of trusted advisors? What are the reasons to do so? If you decide to partner with a financial advisor, when should you do it? And how will you select a good one? These are key questions, especially at major times of change in life and/or in times of market volatility. Just as with other members of your team, once you find someone you can trust implicitly, someone who really watches out for you and thinks two steps ahead, the value of that advisor can be immense and far in excess of the cost that they charge to maintain their ability to deliver their services to you!
7 Devastating Mistakes Investors Make
and How You Can Avoid Them.
Are You Too Busy to Manage Your Investments?
One of the main reasons why you might not want to manage your own investments and want to work with a trustworthy and experienced financial advisor is simply because you are too busy. Modern life seems so time-constrained. The demands of family and work leave less and less time for other pursuits. “Pressed for time” or “There is not enough time in the day “are common phrases we hear often.
You don’t have to continuously monitor the market all day long to manage your investments wisely. Depending on your goals and the composition of your portfolio, however, you may need to evaluate it periodically to make sure you’re on track and following your investment plan. You do have an investment plan, correct? Evaluate whether you have the necessary time available to properly manage, maintain and update your strategy and portfolio consistent with your plan.
The other issues besides time, is that the opportunity cost of being too busy can be astronomical. Think about all the people who have parked their money in cash because they have been too busy or uncertain to make long overdue decisions on how and where to put it to work to earn better returns. In this sense, adding a good financial advisor to your team is potentially a one-time decision that can, literally, pay dividends for life.
Do You Have the Right Personality?
Stocks and bonds generally form the core of many people’s investment portfolios. But there are also other areas such as income real estate, private equity, etc. As you probably know, stocks can roller coaster up and down and tie an investor’s stomach in knots. At other times Mr. Market is lulled into slumber. When he’s sleeping you may get antsy and wonder if you will ever reach your financial goals. Or you may itch for some action wanting to put on some trades just to do something, anything. Oh, and then there’s your rich brother-in-law. He’s just suggested a "no-lose stock idea" at a dinner party and you feel tempted to get in on the action.
In each case, your emotions or lack of planning may make for poor decisions. You may deviate from your rational investment plan against your better judgement or long-term best interests. These are just a few of the emotional situations that affect everyone who invests in stocks. Having a good financial advisor on your team can make many of these challenges moot.
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Do You Have the Expertise?
Knowledge and expertise is a big deal in successfully navigating the investment landscape. Yes, one can make it simple by just keeping all your money in a bank savings account or in certificates of deposit. If you do that, however, your principal will be protected, but you’d be earning near zero and may never achieve your long-term investment goals.
Modern portfolios may need a mixture of many different types of investments: common and preferred stocks, corporate bonds, cash reserves, real estate investment trusts, and master limited partnerships, as well as more sophisticated options that could include private income real estate, private debt and even private businesses to name a few. Some of these have peculiarities and idiosyncrasies that you need to know about in order to make intelligent investments. Do you have the skills to manage your investments?
A great financial advisor can do the hard work for you and even bring new opportunities and perspectives to the table that you might never have uncovered on your own.
Compounding: The Stakes are High!
If you are like most people, you want your hard-earned nest egg to grow at a nice rate. The earlier you start to put the power of compounding to work, the larger your assets will grow over time. It is said that Albert Einstein observed that compounding is the eighth wonder of the world. By reinvesting your periodic incremental gains systematically over the years, your balance can grow exponentially by the end. The financial “Rule of 72” states that you can predict the amount of time needed to double your investment sum by dividing your rate of return into 72. For example, if you invest your money at a 10% return, you will double your money every 7.2 years.
Be an Einstein with your wealth. By using the power of compounding and beginning your investment journey early, you really can amass a significant sum. A good financial advisor can help. Unfortunately, many people procrastinate and miss out on a lot of the good that could be theirs. A great financial advisor on the team can help you take action consistently and on a timely basis so that the power of compounding starts and stays working for you.
Good and Bad Financial Advisors
Every profession has them: Sharks, bad actors, and scammers. The financial industry is no exception. In fact, given the incentives and the possibilities for quick money and the sales oriented culture of many firms bad advice is more common than it should be. Certain firms are purely focused on selling and making money for themselves, yet they style themselves as “advisors” who have your interests in mind.
In the arena of financial planning and wealth management, there are good, bad and, in some cases, excellent advisors. Obviously, if you are going to add a financial advisor onto you team of trusted advisors, you want to take the time to find the best advisors - those that you and others would eventually come to regard as excellent and invaluable additions to your team of confidants based on the value they add to your life and situation over time.
How do you discern the excellent ones?
Look for the following characteristics when evaluating the potential of working with a financial advisor:
- Stability and Experience: You’ll want to narrow down your field to those advisors who have been in business for a while. How long is a while? They should be in business for at least a decade. You want an experienced advisor who has seen a thing or two in the markets. You want one who is focused on the long-term.
- Fee-only: Financial advisors come in two flavors: Those who take commissions that you are never told about, especially upfront, and who are focusing on promoting sales of various financial products to generate to generate their commissions versus those who work for you only for a fee that is disclosed to you ahead of time. Demand fee-only financial advisors.
- Transparency: Interview the advisors. Do they foster education and believe in transparency? Do they invest the same way with their money as they would propose for you?
- Philosophy: Do they have a consistent philosophy to the way they identify and approach their investments and their advice? Can they explain this philosophy to you in a way that you can understand? Does the philosophy make sense and stand the test of time?
- Results: Do they have an established record? Have they grown? Do they invest their own money in their strategies?
- Customization: Do they have the ability to deal with sophisticated as well as more plain vanilla investment? Do they tailor investments to the needs of each individual client? Or do their portfolios all look roughly the same based on cookie-cutter and oversimplified asset allocation pie charts?
Join our family of 200+ clients who trust Ridgewood.
One step can bring you a lifetime of benefits.
When is a Good Time to Partner with a Financial Advisor?
Ideally, the best time to begin a long-term relationship with a financial advisor and add them to your team of trusted advisors is early in your earning career, right around the time that you can begin a systematic savings and investment program. In practice, however, anytime is a good time if you have a significant sum saved but little time or expertise to manage it properly. It is never too late to hire a great advisor and start taking advantage of the power of investment compounding.
Ridgewood Investments: An Advisor with Experience and Integrity
Many busy professionals lack the expertise, proper mindset or the time available to manage their investments properly. If you would like to partner with a competent and knowledgeable financial advisor, consider Ridgewood Investments.
Continuously in business since 2002, Ridgewood is a 100% fee-only advisor who are fully transparent in the management of your hard-earned dollars. Ridgewood works hard so you don’t have to.
If you could benefit from getting organized and increasing your wealth without you having to work any harder than you already do. If you like working with smart and experienced and well educated professionals who watch out for you, then give Ridgewood Investments consideration as the next or most recent addition of a great financial advisor to your circle of trusted advisors!
About the Author
Kaushal “Ken” Majmudar, CFA founded Ridgewood Investments in 2002 and serves as our Chief Investment Officer with primary focus on managing our Value Investing based strategies. Ken graduated with honors from the Harvard Law School in 1994 after being an honors graduate of Columbia University in 1991 with a bachelor’s degree in Computer Science. Prior to founding Ridgewood Investments in late 2002, Ken worked for seven years on Wall Street as an investment banker at Merrill Lynch and Lehman Brothers where he has extensive experience working on initial public offerings, mergers and acquisitions transactions and other corporate finance advisory work for Fortune 1000 companies. He is admitted to the bar in New York and New Jersey though retired from the practice of law.
Ken’s high level experience and work with clients has been recognized and cited on multiple occasions. He is a noted value investor who has written and spoken extensively on the subject of value investing and intelligent investing. He has been a member of the Value Investors Club – an online members-only group for skilled value investors founded by Joel Greenblatt, SumZero – an online community for professional investors, and has also written for SeekingAlpha – among others. Ken is active in leading professional groups for investment managers as a member of both the CFA Institute and the New York Society of Securities Analysts.