Retirement Planning: Should You Go It Alone or Hire An Advisor? (EP.185)

0:28We all need to make smart decisions with our money. you have to go to thelongterminvestor.com, sign up there, or you can go into this episode's podcast description, and there is a quick and easy link. And let me tell you why it is so important to get on this newsletter. Once, maybe sometimes twice a year, I'll send out a note to all of my readers and let them know that I have carved out time exclusively to help them make better choices with their money. And so right now is one of those special times. And because you may not already be on the list, I will give you a special URL that typically is only reserved for those email subscribers.

1:07And that is callwithpeter.com. That is going to take you to the link where I've carved out special time to help onboard new clients at PlanCorp, where we have spent over four decades perfecting a process that allows our clients to align their money with their goals and values. So again, all the information will be at the show notes of thelongterminvestor.com. It will also be in the podcast description. If you just open up the episode, there are some links there to both sign up for the newsletter and to schedule a call with me to learn more about working with PlanCorp. And look, at some point, most investors face the same dilemma.

1:48They want to know whether or not they should be doing their retirement planning alone or hire a professional to help. Now, I'm obviously biased towards suggesting that investors seek out help, but let me share a quick story to give you more context to my suggestion to hire help. When I bought my first home in May 2010, I was dead set on having a big yard. And with that bigger yard came bigger responsibilities. I had to spend time and effort cutting the grass and maintaining the lawn, something I'd never had to do before. And initially, it took me two to three hours to mow the lawn, and eventually I got efficient enough to finish the job in about 90 minutes.

2:29And I just always felt that that time commitment was very manageable, and the result was pretty good. Now, I was supposed to cut it every five or six days, but I really only had time to do it on the weekend. So usually I'd get around to it every, I would say, six to eight days. But there were many times that I didn't have any time to cut the grass on the weekend. Now, that could have been due to other commitments, and admittedly, sometimes it was just due to laziness. But regardless of the reason, the longer grass usually meant that it took longer to cut the next time and the lawn didn't look as nice.

3:05The worst was, honestly, when I would put it off a day without looking at the weather, only to be surprised by, let's say, like two, three days of rain. And then cutting the grass really became a problem. But all in all, I got by just fine. I didn't kill the grass. And I'd like to think the lawn looked pretty good. Then I saw what it looked like when a professional did the job. The summer my son Tommy was born, it was my first child, and I decided to hire a guy named Leo to cut the grass for$35 a week so I could spend more time with my wife and newborn. I couldn't really stomach the money at first, but this truly turned out to be a way better decision than I could have ever imagined.

3:48Leo, he just did the little things I wouldn't have thought to do or known how to do properly. He periodically changed the direction in which he cut the grass to encourage healthier growth. He fertilized and seeded strategically. He cut the grass a specific length depending on the weather conditions or the area's exposure to the sun. And of course, he edged around our flower beds and plants, something I had never done previously. The end result was a drastically healthier and superior looking lawn. But even more importantly, hiring a professional gave me more time to focus on the things that are more important in life.

4:24And as time has passed, I've actually upgraded my lawn service quite a bit. And I just feel like my needs have become a little bit more complicated than simply cutting the grass. But I also have the money to afford to do it. And as you'd expect, the higher quality of the professional, the higher the cost. And that generally makes sense. But I've ultimately landed on an option that is nearly four times the cost of Leo. But this group answers emails and phone calls so quickly. They do everything I ask. They do anything that they say they're going to do. And they just they have a very wide range of services.

5:01So wide. I think when I hired them, I didn't think I would necessarily need any of them. Well, certainly not on day one, but maybe not ever. but being in year two, I've started to realize this wide range of service is coming into play. And so when I've needed something, paying extra has been well worth the peace of mind. Now, finances, they're not nearly as complicated, but mistakes are much more costly. And I think people who take a do-it-yourself approach to any job, being it landscaping or financial planning, are going to do so to either save money or just because they enjoy the work. And I've also come to learn that do-it-yourselfers are okay with, quote, getting by just fine, kind of like I was with my lawn.

5:48But the difference between doing just fine and doing well with your money is significant. Now, much like Leo did a variety of things to improve my lawn's health and appearance, a financial professional does things you would never think to do. And while I do agree that building and executing a financial plan is not necessarily rocket science, not knowing what you don't know can seriously limit growth. And like I said earlier, the mistakes can cost huge amounts of money. And the mistakes and the missed wealth-enhancing opportunities aren't really all that obvious to do-it-yourselfers because they don't have the tools to accurately evaluate their financial lives.

6:30Financial advisors, on the other hand, they have tools, they have processes, they have people who are there to dramatically improve your financial outcomes. In fact, there is an ongoing Vanguard study that estimates that financial advisors add quote about 3 % in quote in relative return to an individual's investments. Now, I outlined these best practices that contribute to Vanguard's estimate of a financial advisor's value in my book, Making Money Simple. And so in the show notes at the long-term investor.com, I grabbed that figure so you can see the breakdown. And what they explain in this study is that the value of an advisor isn't consistent over time.

7:12You wouldn't expect that 3 % to show up each and every year. And an advisor's value from a strictly investment perspective largely comes from just managing behavior and staying the course. And I can't tell you how many times I've seen firsthand how valuable interventions can be in times of panic. And those interventions can potentially offset a lifetime of fees. But even outside the times of heightened volatility, investors unknowingly make a lot of behavioral and emotional mistakes that hurt their performance. And unfortunately, this just isn't always obvious because they don't have the reporting or the tools to notice.

7:53And this is no mistake. I think the brokerages where your accounts are held don't have any incentive to show performance in the way a financial advisor would. And I think the same is really true for some of the most popular robo-advisors. Performance is shown in a manner that largely glosses over your mistakes. And I remember explaining this a few years ago at a presentation to a group at the American Association of Individual Investors. And this is a large association with chapters all over the country made up of people that prefer a do-it-yourself approach over having a financial advisor. And I remember there was one gentleman who came up to me after the presentation and demanded that I see a spreadsheet tracking performance because he insisted that he was the rare exception to this idea that individual investors don't have an accurate picture of their performance.

8:43Now, honestly, I can't tell you, nor do I remember, how many do-it-yourself performance spreadsheets I've seen in my career, but not once have I seen someone do it correctly. And this group includes some really, really smart people. And this gentleman, I don't think he was any different. I just knew he wouldn't be tracking the necessary daily ending values for his portfolio. I mean, he was pulling data quarterly. So right there, that's actually a mistake. but he also wasn't accounting correctly for inflows and outflows, which is maybe one of the most common DIY errors. But he also had some incomplete information on one small account and one not so insignificant sized account.

9:24So those had to be excluded from his analysis, which obviously meant he couldn't see the whole picture. Now, of course, he had no idea until I provided the feedback and just leads me to the one final point on investing. When you're investing on your own. You lack a natural way to check your work, so to speak. And I think anybody would agree, regardless of the topic, whether it's financial advice or something else, it's always helpful to have an objective party around for such things. And it's also truly difficult to know what you don't know about investment management, about tax planning, about financial planning.

10:01And so, look, I've been honing in on investment merits. I'm now saying tax planning, financial planning, because your decision to hire a professional shouldn't be only about investments. I personally have the belief that choosing an advisor who provides comprehensive financial planning, just beyond the traditional investment advice, someone who can get your entire financial house in order and keep it that way forever, that's really what you ought to be looking for. Someone who is proactively assisting in estate planning, in tax projections, insurance analysis, entitlement strategies, just as important as knowing all those things is making sure that all these aspects work in harmony.

10:40And I think it's really interesting that the Vanguard study I referenced early doesn't attempt to quantify the value of comprehensive financial planning because as the authors noted, we don't need to see oxygen to know it's beneficial. Now, I do have an article in the longterminvestor.com within the show notes. It's called the eight essential elements for a complete financial plan. It's worth downloading if you've never worked with an advisor and want to know what it's all about beyond the obvious things such as investing. But again, there's this crowd of people who just prefer to do this work on their own.

11:12And I sort of get it, but I also wonder why. Because I think most people would turn to a lawyer to interpret laws or argue a case in court on their behalf. I'd also imagine that very few people would prefer to have medical care from anyone but a doctor. Doctors and lawyers spend years receiving specialized education and their skills are enhanced throughout their career with regular practice. So people are quick to hand over jobs to those professionals. There's also really high barriers to carrying out medical or legal tasks on your own, but there are basically no barriers to investing on your own.

11:48And anyone can invest on their own, but the research shows us that time and again, that they are likely to do worse than if they hired a financial advisor. Now, I'd also like to point out that saving for retirement is very different than retiring. The accumulation phase is pretty well agreed upon. You keep costs low. You stick to an asset allocation. You stay the course. You don't get emotional. A lot of the tax strategies, which account to use first. But decumulation is where things get complicated. And there's not a book or a podcast or a single set of articles or people writing articles that can really tailor the decumulation phase to you.

12:31You know, there's a lot of reason I think hiring a professional is going to be great, whether it's a personal trainer or somebody to help with your money. But I think when it comes to your money, the most important thing that people don't always realize until they've done it is that hiring a financial professional just frees you up to do more things that you love. And it alleviates the stress that can come from managing your own financial matters. One last thing. I am biased in thinking that choosing a good advisor is one of the best decisions you can make. obviously. But I'm not naive to the fact that choosing the wrong advisor can do more harm than good.

13:08And I do think that choosing a financial advisor can be a confusing process, especially because different professionals adhere to different standards of care. And making matters worse, there's just a litany of fancy titles and this alphabet soup of designations that professionals stick on their business cards. So in the next episode of The Long-Term Investor, I'm going to to explain some of those differences between the various financial professionals so that you can make an informed decision when choosing one. Again, if you'd like to learn more about the process that PlanCorp has developed over the last four decades, you can look at the episode description in your podcast app, or you can go to callwithpeter.com.

13:51There is extra time carved out this month to make sure that you can meet with us and find out how we can help align your wealth with all your goals and values. As always, thanks so much for listening and until next time to Long-Term Investing. Thanks for listening to the Long-Term Investor podcast. To access free financial resources and submit questions to be answered on the show, visit thelongterminvestor.com. Peter Lazaroff is an employee of PlanCorp and Brightplan. All opinions expressed by Peter and any podcast guests are solely their own opinions and do not reflect the opinions of PlanCorp or BrightPlan.

14:31This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of PlanCorp and BrightPlan may maintain positions in the securities discussed in this podcast.