Should I hire a financial advisor?

[TheHelgo]

I work in the investment field as a portfolio manager / adviser, and it is very important to understand what kind of adviser you hire before you do so. I work for a Trust company as an adviser where our fee arrangement with clients is asset based - not commission. We never charge commissions, we never use loaded funds and we stress diversification of assets. This last point is something that I have not seen discussed yet in this thread. I have seen several posts stating 'max out the 401K and put any other excess in an index fund'. Ok, that is better than shoving it into a low/no interest savings or checking, but if you simply choose an S&P 500 index fund (like SPY) for instance, you are not only giving up several areas of potential performance, but you are actually taking on more risk than you need to. The true benefit of a good adviser is helping you / your family put together a portfolio that works for your unique situation - mixing in US stocks, International stocks, commodities, real estate, bonds, etc.

As many have mentioned, finding a good adviser that not only puts your interests first, but also is good at what he/she does is important. Make sure you understand the fee structure and by all means - make sure you ask about the embedded fees in the investments the adviser uses. As I mentioned, I never use loaded funds and always look for investments with low expense ratios - I have no incentive to do otherwise. Loaded funds or high expense investment expense options could gut your performance if used extensively. Just ask the questions when you are finding someone.

Finally, as others have mentioned. Max out your 401K. This is a slam dunk in the OP's situation. You are putting more away for the future and keeping more from Uncle Sam in the process.

Good advisers can take a positive situation and make it work for your future. Everyone ultimately makes their own decisions on this, but if someone is developing a nice nest egg and doesn't have the time to educate themselves on investments and do it right, it is in your best interests long term to get help on devising a strategy and asset mix that works for you, your family, and your (your family's) future.

 

[cyfan92]

https://www.irs.gov/retirement-plan...k-and-profit-sharing-plan-contribution-limits



Max out your 401K to this amount. I would invest excess into 2 or 3 roth IRA index mutual funds. Ex: 50% in SPX, 20% into small/mid caps and 30% into international funds.

Vanguard is the best. There is a reason they are growing faster than anyone else in the market.

https://www.nytimes.com/2017/04/14/business/mutfund/vanguard-mutual-index-funds-growth.html

 

[throwittoblythe]

I'm a research scientist in my mid 20's, and am lucky to be well off. I have a stable job making ~75k a year, no auto/student loan debt, and am very happy with my situation. My only real expense is rent which is about $800 per month.

I have been putting the max percent that my company will match (6%) from each paycheck towards my 401k for retirement. I put another large chunk into a higher interest online savings account and at this point have close to 15k in savings, which is more than enough for an emergency fund.

What should I do with some of that extra money? Should I hire a financial advisor to help me with these decisions? Will that person just tell me to put 20k into an index fund? I'm very hesitant to do so because they seem like used car salesman, especially if their compensation is all commission based. I know that some CFP's are fiduciary and are required to have their clients best interest in mind, but I am still weary about the whole process. I have a master's degree in the hard sciences, and I know that I'm smart enough to manage my own money. I do have some interest, but I have a lot of questions. I know it will take some time to learn best practices, and I don't know if it is worth it to go through all that trouble if I can hire someone to do it for me. I don't know if a financial advisor will do that much better of a job than I could learn to do myself. Especially considering some of the people I know that are now successful financial planners for major firms. It makes me think maybe I could do a much better job on my own. What has your experience been with financial advisors?

One thing to consider in your financial planning, in general, is charitable giving. As well as you're doing, you could use some of your abundance to help others. Find a cause you're interested or passionate about and consider a regular donation to a related charity or non-profit. Do your research, though, because many of them run on extremely high overhead/expense ratios.

 

[khardbored]

Depends how savvy you are and how much time you'd like to devote. The general feeling is at your age find a broad-base market fund and let it sit and sit and sit. Wife and I went the other route and have had professional management for the last 20 years (getting ready to retire at 55 if things work well).

If you go advisor route, be leery of ANYONE who does anything more than manage stocks and bonds mutual funds... When they start pushing proprietary funds with higher loads, when they start trying to sell you annuities, life insurance, zero interest home loans - RUN as they do NOT have your financial success in mind.

Any financial advisor would be doing you a huge disservice if he/she didn't at least make a plan for and discuss life insurance. Same with disability insurance.

If it becomes the main focus, that's probably a red flag -- but you should have an appropriate amount of life insurance coverage, and do it early, while still easily insurable. Even if single, there's no better time to lock in a good rate than now. You'll never be younger, and most people don't get healthier as they age!

(I've seen way too many people who wait until they have their first child to buy life insurance, and by now they're overweight, have type 2 diabetes, a heart flutter, or some other "minor" medical condition that makes that simple term life insurance policy very expensive.)

 

[intrepid27]

1. Max out work 401K. You can add more than you company will match. If you want to save more. 2. Open up a Roth. You can do this through on line account or through a broker. If you want to save more just open up an investment account . Again on line or through a broker.

I pay my broker a (5%) one time fee and can move money without any cost after that. I don;t want to invest the time, and take on the responsibility to do my own research. This may not be important to you but he is also good with retirement planning. 5% sound like a lot but if his picks outperform mine by 2% it will come back after a couple of years.

 

[capitalcityguy]

Any financial advisor would be doing you a huge disservice if he/she didn't at least make a plan for and discuss life insurance. Same with disability insurance.

If it becomes the main focus, that's probably a red flag -- but you should have an appropriate amount of life insurance coverage, and do it early, while still easily insurable. Even if single, there's no better time to lock in a good rate than now. You'll never be younger, and most people don't get healthier as they age!

(I've seen way too many people who wait until they have their first child to buy life insurance, and by now they're overweight, have type 2 diabetes, a heart flutter, or some other "minor" medical condition that makes that simple term life insurance policy very expensive.)

I agree in the importance of life insurance but highly disagree that the OP should get life insurance now. Life insurance is for taking care of dependents who rely on your income.

If the OP is single and no dependents, why are they paying for a life policy?

The whole "don't risk waiting until you are uninsurable" is a salesperson scare tactic in my experience. All you have to do is do your research to find out that very, very few individuals (especially at the age of being a young parent...when you DO need to get a life policy) have any health issues that materially effect the premiums they'll pay.

Assuming the OP is of normal health and has no one depending on their income today, there is little to no reason to buy life insurance of any kind.

 

[CyOps]

Bitcoin.

 

[khardbored]

I agree in the importance of life insurance but highly disagree that the OP should get life insurance now. Life insurance is for taking care of dependents who rely on your income.

If the OP is single and no dependents, why are they paying for a life policy?

The whole "don't risk waiting until you are uninsurable" is a salesperson scare tactic in my experience. All you have to do is do your research to find out that very, very few individuals (especially at the age of being a young parent...when you DO need to get a life policy) have any health issues that materially effect the premiums they'll pay.

Assuming the OP is of normal health and has no one depending on their income today, there is little to no reason to buy life insurance of any kind.

I strongly disagree. I think the amount of people who have enough of a heath concern to materially impact their life insurance premiums (negatively) is larger than you are thinking. I have no stats, but lots of anecdotal cases.

Very, very few individuals die before the age of 65 anyhow. Why bother paying for life insurance if there's a 99% chance I'll never use it? (Of course, I'm being facetious to make a point, but I think you see where I'm going.) I suppose it all comes down to how much risk you feel comfortable taking.

 

[cytor]

I'm glad this thread popped up. Lots of good advice here. I actually do this for a living. I am licensed in multiple states and I help people with retirement stuff. Here is my 2 cents:

1) Contribute to your 401k up to the company match. Don't do more than that. Here's why: Ask yourself, "Are taxes more likely going to be higher when I retire, or do I think the tax rate will drop by the time I retire?" Remember this, Deferring taxes is always nice, but at some point Uncle Sam will get theirs. Would you rather pay tax now at today's current rate, or do you want to pay it later at what will likely be a much higher rate? Not to mention, you will be retired and that is when you want your money the most.

2) Start up a Roth IRA and max it out yearly. It won't be long at your current pace that you will soon become ineligible to contribute due to your income potential.

3) Buy a cash value life insurance policy ( Variable Universal life, index universal life, whole life, etc). As stated from from some of the other posts.... It will NEVER be cheaper than today, Get it while you are healthy, buy a decent amount of coverage and grow into it ..AND most inportant.... take that extra income and overfund the policy. The interest you earn does NOT get reported as income (no tax). The only time you will ever get taxed on a life policy policy cash value: 1) You cash it out completely (cancel the policy), or 2) you withdrawl all the principal out and you start to dip into the interest (FIFO). If you set your policy up right, neither of these will happen and you will be very happy!

4) Although the $800 per month is not too bad for rent, it is a great idea to buy a house or townhouse. Stop renting and start owning.

 

[dmclone]

Every couple of years the company I work for offers a financial adviser to come out and talk to you free of charge. He works for our company and has no financial strings attached to the products you buy. He said that I didn't need any financial advice as far investing but did have a couple of recommendations that I appreciated. He told me to look into getting an Umbrella policy and said that overall I was on track.

I'll probably use this every 5 years or so to make sure I'm in good shape.

 

[Frak]

If 2008 (should have) taught us anything, to buy or not to buy (and what) regarding housing isn't the slam dunk decision people often thought it was in the past.

Sure, but as long as the housing market doesn't fall off a cliff, it's almost always better to build equity vs paying rent if you have the money for the down payment. Not sure where the OP lives, but Iowa is a little bit insulated from major housing market swings.

 

[cowgirl836]

I agree in the importance of life insurance but highly disagree that the OP should get life insurance now. Life insurance is for taking care of dependents who rely on your income.

If the OP is single and no dependents, why are they paying for a life policy?

The whole "don't risk waiting until you are uninsurable" is a salesperson scare tactic in my experience. All you have to do is do your research to find out that very, very few individuals (especially at the age of being a young parent...when you DO need to get a life policy) have any health issues that materially effect the premiums they'll pay.

Assuming the OP is of normal health and has no one depending on their income today, there is little to no reason to buy life insurance of any kind.

In many cases, there may already be a policy through the employer. I believe both husband's and my company have one that pays out 1.5 or 2x salary. It's not huge but is fine for now. We'll probably add on once we have dependents. If OP already has that and no spouse or kids, I agree, no reason for him to purchase anything additional.

 

[cowgirl836]

I'm glad this thread popped up. Lots of good advice here. I actually do this for a living. I am licensed in multiple states and I help people with retirement stuff. Here is my 2 cents:

1) Contribute to your 401k up to the company match. Don't do more than that. Here's why: Ask yourself, "Are taxes more likely going to be higher when I retire, or do I think the tax rate will drop by the time I retire?" Remember this, Deferring taxes is always nice, but at some point Uncle Sam will get theirs. Would you rather pay tax now at today's current rate, or do you want to pay it later at what will likely be a much higher rate? Not to mention, you will be retired and that is when you want your money the most.

2) Start up a Roth IRA and max it out yearly. It won't be long at your current pace that you will soon become ineligible to contribute due to your income potential.

3) Buy a cash value life insurance policy ( Variable Universal life, index universal life, whole life, etc). As stated from from some of the other posts.... It will NEVER be cheaper than today, Get it while you are healthy, buy a decent amount of coverage and grow into it ..AND most inportant.... take that extra income and overfund the policy. The interest you earn does NOT get reported as income (no tax). The only time you will ever get taxed on a life policy policy cash value: 1) You cash it out completely (cancel the policy), or 2) you withdrawl all the principal out and you start to dip into the interest (FIFO). If you set your policy up right, neither of these will happen and you will be very happy!

4) Although the $800 per month is not too bad for rent, it is a great idea to buy a house or townhouse. Stop renting and start owning.

As to number 1, some companies allow you to contribute post-tax. The match will always be pre-tax, but some do allow post-tax contributions. In my case, many of the funds are high-fee so I contribute to the max match and then go to a Roth IRA instead.

Owning a house is not always cheaper than renting. And rent money is not just "thrown away". If you don't have need for a house right now, don't do it just because.

 

[DeereClone]

I would invest in growth type mutual funds through your 401K up to the match. I'd set up an IRA and do the same there and max it out. Read a few books, study track records, historical returns, etc and make your picks from there. Look for funds that have been around a while that have 8-12% historical returns.

If you think your situation is fairly permanent, I would look towards saving money to buy a home.

After that, go back to the 401K and max it out (max and match are different). If you are looking to diversify, instead of maxing out the 401K look for real estate or other investment opportunities.

I hired an adviser and quickly realized that no one will care about my money more than me, so I should train myself and manage this myself. Paying someone a 6% commission rate to put money in a Target Date retirement fund was insanely dumb on my part - but I was fresh out of college and thought I was doing the responsible thing by hiring someone.

 

[cloneteach]

Read some books, you can do this yourself.

Here are some I have enjoyed:

The Millionaire Next Door
The Automatic Millionaire
The Bogleheads' Guide to Investing
A Random Walk Down Wall Street
The Investment Answer
Coffeehouse Investor

 

[cytor]

Here's an excellent read:

"The Power of Zero" by David McKnight

Very easy read and eye opening.

 

[Trice]

3) Buy a cash value life insurance policy ( Variable Universal life, index universal life, whole life, etc). As stated from from some of the other posts.... It will NEVER be cheaper than today, Get it while you are healthy, buy a decent amount of coverage and grow into it ..AND most inportant.... take that extra income and overfund the policy. The interest you earn does NOT get reported as income (no tax). The only time you will ever get taxed on a life policy policy cash value: 1) You cash it out completely (cancel the policy), or 2) you withdrawl all the principal out and you start to dip into the interest (FIFO). If you set your policy up right, neither of these will happen and you will be very happy!

I'm going to start a holy war here...but I have read/studied personal finance issues for years and I can't think of a single unbiased finance expert who would recommend buying anything other than term life insurance. Of course, it's debatable whether the OP needs any insurance at all given his age and lack of dependents. But whether he wants it now or would need it someday, the same applies...the only people I've seen recommend that you buy cash value life insurance are the people who sell cash value life insurance.

Buy term life with the cheapest reputable company you can find. Invest elsewhere.

 

[DeereClone]

I'm glad this thread popped up. Lots of good advice here. I actually do this for a living. I am licensed in multiple states and I help people with retirement stuff. Here is my 2 cents:



3) Buy a cash value life insurance policy ( Variable Universal life, index universal life, whole life, etc).

Highlighted for redundancy.

 

[oldman]

I hired a financial adviser and it was one of the best things I ever did.

 

[throwittoblythe]

Owning a house is not always cheaper than renting. And rent money is not just "thrown away". If you don't have need for a house right now, don't do it just because.

This is an important point for a lot of folks, especially young professionals. Our society puts a lot of pressure in many areas "go to college, get married, buy a house, have kids," etc. It's important to recognize things that are true versus things that are just established norms in our society. At face value, renting appears more expensive than owning because you (theoretically) will build equity over time. However, you have to factor in your personal situation. Consider maintenance costs, savings on taxes, HOA fees, etc.

I know a married couple. They just turned 27 and had their first baby. They lived in a two-bedroom apartment with very low rent. As soon as they found out they were pregnant, they started looking to buy a house because that's what you do. After much discussion and research, they realized it made no sense for them to own a home at this point due to the great arrangement they have with their landlord. So, they've stayed in their apartment with their newborn and it's working great.

Finance is such a hairy issue because it's supposed to be individualized to each case, but most people present it in broad forms. Just because it worked for me, doesn't mean it will work for you. There are some universally good pieces of advice and those are good ones to carry with you. But each case is unique.