Josh Strange is the Founder & President of Good Life Financial Advisors of NOVA. The firm works with federal employees and contractors.
Perhaps the first thing people think about when deciding whether to work with a financial advisor is investment returns. This is especially true today, when the markets have enjoyed a great couple of years and a string of notable companies have experienced outsized gains.
Indeed, many have likely mused, “If I had only invested a few thousand dollars in Nvidia a couple of years ago,” referring to the chip maker and posterchild of the artificial intelligence-driven bull market, which is up almost 2000% since the beginning of 2020.
Yet, working with an advisor is not about spotting the next high-flying stock or even outperforming an index. It’s about achieving financial health. An important part of that process is taking care of the unexciting but crucial tasks to ensure your financial house is in order before you start chasing yields.
A swelling portfolio is great. But you know what else is great? Seeing the big picture, identifying problems and developing solutions. Someone who can do this for you can head off potential headaches that drain time, money and peace of mind from you no matter how well your portfolio performs.
Here are three things people often neglect but should discuss with their financial advisor from the get-go:
Estate Planning
Few people like to talk about death. Fewer still want to talk about their own. Perhaps that’s why nearly 60% of Americans said last year they did not have an estate plan, according to a report by Caring.com.
As disconcerting as that is, what’s equally troubling is that many of the people who claim to have an estate plan are not properly implementing it, which, for all intents and purposes, means they do not have one. I always tell my clients that having an estate plan is more than drawing up some documents with a lawyer. Yes, those documents are part of the process, but they don’t represent the plan itself.
For instance, if you’ve set up a revocable trust but failed to title assets or name the trust as a beneficiary, nothing will come of that effort. Similarly, if your will directs your assets to be distributed one way but all your IRA beneficiaries point to something different (this happens more often than you’d think), your descendants could end up in court.
If you think there’s a gap between the intentions behind your estate plan and what it actually does, surface those concerns with your financial advisor. They should be able to help you resolve any discrepancies.
Property/Casualty Insurance
If there’s anything less sexy than estate planning, it’s probably insurance. But, like estate planning, having the right coverage is vitally important.
The law generally requires people to purchase homeowners and auto insurance. The problem is that many buy plans with insufficient coverage. People in flood-prone areas like the Gulf Coast region are well-versed in this topic, with most knowing full well that their run-of-the-mill homeowners policies do not cover hurricane-induced water damage. Yet, wild weather happens all over the country, and many others don’t know they need to buy a policy from the federal National Flood Insurance Program to protect themselves fully.
On the flip side, some people buy insurance with too much coverage. That means they waste money on premiums for events that are highly unlikely to occur or irrelevant to their situation. For example, it doesn’t make a ton of sense to have full coverage on a paid-off “beater” car.
Behavioral Finance
The best financial advisors play the role of a psychologist, helping their clients stay the course and manage their behavior, regardless of the investment or economic environment. It’s a tired cliché but an apt one: Saving and investing for retirement is a marathon, not a sprint.
Left to their own devices, investors are more likely to make snap decisions based on a run of bad headlines and an uptick in volatility. Invariably, that tends to produce lower returns in the long run because such skittishness leads people to exit positions at market lows, only to return when much of the recovery is over. Over time, an erratic approach like that can devastate a portfolio.
Financial Advice Is About More Than Just Investment Returns
When seeking financial advice, the primary motivation is often to maximize investment returns or find the next Nvidia before it takes off. However, investors need financial advisors for a much broader range of issues. Granted, some of those topics may be tedious, but they are crucial to a person’s financial well-being and are just as important—maybe even more so—than portfolio gains.
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