| On the surface, index investing seems like a | | | | most seasoned index investor needs the |
| perfect fit for do-it-yourself investors. The | | | | occasional reminder to avoid distractions and stick |
| simplistic buy-hold-rebalance mantra of index fund | | | | with his investment plan. |
| proponents combined with the abundance of help | | | | A good advisor also provides access to research, |
| from investing authors and online forums leads | | | | techniques and investment choices that have the |
| scores of informed investors to take on the task | | | | potential to boost returns. By understanding |
| of personal portfolio management each year. | | | | complex issues like tax management, estate |
| Many DIY investors never look back; they | | | | planning and retirement forecasting, an advisor |
| treasure their newfound fiscal autonomy and the | | | | can help you better understand the likelihood of |
| challenge of overcoming future financial hurdles. | | | | reaching your retirement goals and suggest steps |
| Others, however, discover that they lack the | | | | that you can take to tilt the equation in your |
| time, interest, knowledge or discipline to | | | | favor. Additionally, he may be able to expand |
| successfully negotiate the dangerous DIY terrain, | | | | your investment choices by providing access to |
| and they ultimately seek help from an investment | | | | exclusive fund families or share classes. |
| advisor. The purpose of this article is to clearly | | | | Finally, a good advisor performs laborious tasks |
| present the rationale for each approach so that | | | | like portfolio monitoring and rebalancing so that |
| index investors can decide which tactic best suits | | | | you can devote your time to other pursuits. An |
| their needs and abilities. | | | | advisor who monitors your portfolio frequently |
| Why Investors Do it Themselves | | | | can ensure consistency with your risk profile while |
| According to a 2006 study by the Investment | | | | potentially squeezing excess returns from |
| Company Institute, the primary reason that DIY | | | | rebalancing activity. |
| investors manage their own portfolios is that they | | | | Conclusion |
| want to be in control. There is a sense of | | | | Many investors want a quantitative answer to the |
| empowerment that comes with making your own | | | | question of whether to hire an advisor; they want |
| investment decisions, and DIY investors, especially | | | | to know definitively whether an advisor would |
| men, like holding the reigns. The study also found | | | | provide them with higher investment returns |
| that the majority of DIY investors believe that | | | | after fees. In order to answer this question, you |
| they have the necessary information and | | | | must first ask yourself whether you have been |
| intellectual ability to make well-informed, prudent | | | | able to develop and consistently implement a |
| financial decisions without the help of a | | | | low-cost, disciplined investment plan on your own. |
| professional. In the minds of these confident | | | | Many investors don't have enough interest, |
| investors, advisory fees are an unnecessary | | | | knowledge or ability to develop a sensible plan; |
| expense. Finally, many individuals find personal | | | | even more lack the necessary discipline to follow |
| finance to be a rewarding hobby. According to the | | | | one. If you find yourself veering off the path to |
| study, the majority of DIY investors enjoy | | | | chase a hot new sector or time the market, |
| conducting their own financial research, crunching | | | | there's a good chance that an advisor would bring |
| numbers and closely monitoring their investments. | | | | some return-boosting discipline and objectivity to |
| Others choose the DIY path not because they | | | | your investment decisions. |
| love the idea of managing their own investments, | | | | If you do possess the mental and physical |
| but because they dislike the idea of hiring an | | | | fortitude to develop a sound plan and consistently |
| advisor. You may fall into this category if you | | | | stay the course, you should probably look to |
| place a high value on your financial privacy, believe | | | | qualitative factors to make your decision. For |
| that most financial advisors are incompetent or | | | | instance, would you rather spend the time that |
| untrustworthy, or simply want to save money by | | | | you dedicate to investment management on |
| not paying advisory fees. The fact that all | | | | other things, like visiting family or pursuing other |
| investment advisors aren't created equal provides | | | | interests? For many investors, the answer to this |
| little solace to those whose opinions have been | | | | question changes later in life as financial situations |
| shaped by the numerous investor scandals of the | | | | become more complex, the consequences of |
| past year or by a poor past experience with an | | | | poor decisions become more severe, and time |
| advisor. | | | | with family becomes a bigger priority. |
| Finally, there is a group of investors who | | | | The bottom line is that managing your own index |
| acknowledge that they would benefit from | | | | portfolio may be simple, but it's not easy. If you |
| professional help but lack an investment account | | | | decide to oversee your own investments, defend |
| large enough to capture the attention of an | | | | yourself against the tendency to stray from your |
| advisor. First-time investors often fall into this | | | | investment plan by drafting an Investment Policy |
| category and tend to seek advice from public | | | | Statement. If you decide to hire a professional, |
| sources, relatives or friends. | | | | choose a fee-only advisor who agrees with your |
| Why Investors Hire Advisors | | | | passive investing philosophy, embraces his |
| A good investment advisor can add value to your | | | | fiduciary responsibility to act in your best |
| portfolio in a number of ways. First, he acts as a | | | | interests, and is willing and able to add value in the |
| gatekeeper, preventing you from making | | | | ways described above. Whichever path you |
| common return-reducing mistakes. Numerous | | | | choose, you can maximize your chances of |
| studies have shown that individual investors | | | | investing success by accurately assessing your |
| routinely give up as much as 7% in annual returns | | | | risk attitude and capacity, designing a diversified, |
| due to frequent trading, attempting to time the | | | | low-cost portfolio, and sticking with your plan. |
| market and chasing past performance. Even the | | | | |