Financial advisors tend to get a bad rap, which might explain why 62% of adults don't use a professional for financial planning purposes. But without that outside help, you may have a harder time reaching your personal goals. Here are a few signs that it's time to consider hiring someone to help manage your money.
1. Your savings are all in cash
It's a good idea to have some money in cash so you're covered in the event of an unforeseen expense, bout of unemployment, or any other type of financial emergency. But having most, or worse yet, all of your savings in cash is a sign that you may need help managing your wealth, especially if you want a shot at a secure retirement.
The problem with keeping too much money in the bank is that you'll achieve far less growth than with a more aggressive strategy -- namely, a mix of stocks and bonds. Without that growth, your savings may not end up having the buying power needed to cover your costs in retirement once inflation is factored in.
Imagine you're able to save $1,000 a month over 30 years, but you keep that money in cash earning 1% interest annually during that time (which is what today's rates look like). At the end of the time period, you'll have about $417,000 (and that doesn't take taxes into account; if that cash is in a regular bank account, you'll pay taxes on your interest income along the way). On the other hand, if you invest in a mix of stocks and bonds that pays you an average annual 6% return, all other things being equal, you'll have $949,000 to work with instead.
2. Your investments keep losing money
It's not unheard of for the market to have a bad year and for your portfolio value to decline as a result. But if you've been consistently losing money, especially in recent years, when the market has been on an upswing, then it's a sign that you may not be invested properly.
Perhaps you're not diversified enough, or your investments are overly aggressive. Or maybe you just randomly allocated your 401(k) back in the day because you had no one around to guide you at the time, and you haven't reviewed your investment mix since. Either way, though losses are likely to pop up during a lengthy investment window, if you're losing money year after year, it's time to call in a professional.
3. You're too scared to invest in the first place
Countless Americans fear the stock market and the volatility that comes with it. But if that fear is preventing you from getting more aggressive with your investments, you stand to lose out on sizable returns in the long run. And that, in turn, could make for a financially insecure retirement. An advisor can help you assemble a portfolio that gives you a decent amount of exposure to the stock market without taking on undue risk. A professional can also help you build a diversified mix of stocks so you're not overly invested in a single sector of the market.
4. You're clueless about your insurance needs
Overseeing investments is only one of several things financial advisors do. Many are also equipped to offer advice on estate planning and insurance needs. If providing for your loved ones is a concern for you, then it pays to enlist the help of an advisor who can tell you what type of insurance you need (such as life insurance or long-term care insurance) and help you select the most cost-effective policies. If you're responsible for your own health insurance, your advisor might also offer guidance in that arena as well.
Finding the right financial advisor
If you're interested in working with a financial advisor but don't know how to go about finding one, your first move should be to solicit recommendations from friends, colleagues, and family members. Though there are a lot of unscrupulous advisors out there, getting a first-hand endorsement is a good way to gauge a professional's trustworthiness.
Another thing you should look out for is an advisor who's open about the way he or she gets paid. Some advisors work on commission, while others charge a fee equal to a certain percentage of assets under management. Either way, your advisor should make you fully aware of what you'll be paying in exchange for his or her services.
Finally, aim to find an advisor who abides by the fiduciary standard, which means he or she must always put your best financial interests first when recommending products or investments. Believe it or not, not all advisors uphold this standard, which has inevitably led to a general mistrust of the financial services industry on the whole.
Though you can retire successfully and meet your personal financial goals without hiring an advisor, if the above signs ring true for you, it could mean you're desperate for help. If that's the case, don't wait to get it -- because the longer you do, the more money you stand to lose.