Many financial advisors offer advice and also manage assets. There’s nothing inherently wrong with this business model; however, it can make it difficult for you to know exactly what you’re paying for when advice and asset management are blended together. And more importantly, not all clients need both advice and asset management, so some people who need advice only put off seeking out a financial advisor.
Very few advisors — fewer than 1 percent, according to some estimates — offer advice only; most advisors operate under the assets under management (AUM) model.
We believe it’s important to provide professional, ongoing financial advice to our clients without requiring them to hand over their assets for us to manage. Not every client needs to open up an investment account with an advisor. Advisors earn fees when they manage your assets, so if that’s a service you don’t need, seek out advice only — whether or not your advisor also manages assets.
A 2023 Bankrate survey revealed that 47 percent of Americans turn to friends and family for financial advice, while 35 percent turned to financial advisors or other professionals. Another 30 percent sought out advice from social media. The financial services world is more complex than it has ever been. Tax laws and other regulations regarding investments and retirement accounts are always changing, and it is extremely difficult for the average person to keep up with all of it. We strongly recommend working with a financial advisor to guide you in making financial decisions.
More Americans may be willing to work with financial advisors if they knew they could simply receive professional advice without feeling pressured to have their advisors also manage their assets.
Here are three important financial decisions you are likely to make in your 20s, 30s and 40s — preferably with the guidance of your professional financial advisor.
1. Consider the tax implications of your financial decisions
For most people, retirement planning is on their radar, but when you are in your 20s, 30s, 40s and possibly your 50s, retirement probably isn’t your No. 1 priority. Instead, you are likely more focused on life transitions like getting married, growing your family, buying your first home or a bigger home, buying vehicles and maybe starting a business.
It’s during these decades of life that many people start looking into investing. While many people take the do-it-yourself (DIY) approach to investing, it’s easy to make mistakes if you aren’t knowledgeable about investing and taxes. This is why we strongly advise you to seek out the help of an experienced financial advisor.
Too many people make all-or-nothing decisions that might seem smart at the time, based on advice they’ve gotten from friends, family members or the internet. Then they realize that there are serious tax implications they weren’t aware of when they made those decisions. Plus, there is an opportunity cost for every decision you make. Each decision involves a trade-off, and without knowing all the ins and outs of federal and state tax laws and other regulations, it’s easy to miss something.
Your financial advisor will educate you so you can avoid costly — and often irreversible — mistakes.
2. Build up your emergency fund
If you haven’t built up an emergency fund already, make this a priority. We have seen people put most of their disposable income in the stock market, in an effort to reap bigger gains, but then when emergencies come up — as they always do — they end up having to liquidate some of their stocks to pay for those emergencies. This is an inefficient way to manage your money, and it can cause delays in getting the funds you need for those unexpected expenses.
Your emergency fund is your cash cushion. It will enable you to protect your investments.
Traditional wisdom has long suggested saving three to six months’ worth of actual expenses to use for emergencies related to home repairs, vehicle repairs, short-term medical emergencies and other unexpected expenses. However, during the pandemic, when many people lost their jobs or became underemployed, three to six months’ worth of expenses turned out to be far from adequate. Talk with your advisor about how much money to put into your emergency fund.
3. Balance your current and future financial needs
Your advisor will review your current financial situation and ask you a lot of questions about your dreams for the future and what concerns you most. Then he or she will design a personal financial plan that is unique to your situation. Your financial plan will guide your spending, both today and into the future. It will help you balance your current needs with your future needs.
As you go through your 20s, 30s and 40s, your and your spouse’s incomes are likely increasing. Many people aren’t sure how to manage their higher income or the extra money they receive from bonuses and promotions. Too often, lifestyle creep ends up consuming this extra money. When you work with an advisor, he or she will provide you with a plan, a process, for putting your increased earnings to use in a way that’s ideal for your situation.
Your advisor might recommend that you max out your 401(k) plan with your employer, fund an IRA or Roth, or begin setting funds aside for your children’s college education. Again, this is going to look different for everyone, and you will not find the answers you need on AI or on social media. You will experience the best outcome by meeting with an advisor to create a plan specifically for you
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When you work with us, we will work closely with you to build a foundation for managing your finances and planning for the future. We want to guide you in making the best decisions now and for your retirement years, on decisions related to, for example, catastrophic planning, tax-efficient investments and protecting your future income with the right insurance products.
You might just need to know you’re on the right path. We will meet with you and figure that out together.
Any opinions are those of the author and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or a loss regardless of strategy selected. No investment strategy can guarantee your objectives will be met. Past performance is no guarantee of future results. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
