When to stop doing it yourself

We have long been of the opinion that do-it-yourself investing is – on average – a losing proposition.  Yes, you avoid the fees that investment advisors charge for their services.  But the average investor makes mistakes that cost him or her more than the cost of hiring a competent advisor.   Want an example?  According to Dalbar Inc., a company which studies investor behavior and analyzes investor market returns:

For the twenty years ending 12/31/2010 the S&P 500 Index averaged 9.14% a year. A pretty attractive historical return. The average equity fund investor earned a market return of only 3.83%.

I contend that the “average” equity fund investor would have been better off paying a professional advisor a fee to get just near the returns of the market.   And why is that “average” investor doing worse than the market?   It’s not just lack of expertise, but also psychology. The “average” investor buys after the markets have already gone up and sells after the markets have already declined; the perfect buy-high, sell-low strategy.

But we’ve even seen life-long do-it-yourselfers begin to turn to professionals for advice as they get older.  First, they want to have some kind of a formal plan in place for their retirement years.  Second,they want some assurance that they will be able to actually retire and meet their financial goals.  Third, an older client who is worried about leaving behind a spouse who is less financially savvy may hire a financial advisor to help the spouse manage the family money after they go.   Our book “Before I Go” and the accompanying workbook is available from our firm to help people manage that process.

Whatever the reason, it pays to get professional help with your investments, even if only to tell you that you’re doing it right.

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