Why you as a small business owner should consider hiring a professional advisor to manage your investments
What follows is my philosophy on the value of hiring a professional to manage your investments, which goes hand in hand with hiring that professional for your financial planning. Financial planning is a broader process, and does not require investments at the outset (whereas, in my opinion, investment management DOES call for financial planning). Once you have investments, the question becomes whether to engage a professional to manage them or do it yourself.
Let me start by stating what I cannot do. I do not have an advantage over the markets by timing when to buy or sell. I do not select portfolio managers that will consistently outperform their peers. I do not forecast the economy or the markets. Timing, selection, and forecasting are impossible. Would you believe me if I told you they were also inconsequential to your success?
Instead of predicting, your success comes from planning. I help determine how much money is required for the lifestyle and results you want. I help you maximize your capacity for saving. But these are outcomes of working with me as a financial planner, as I mentioned above, regardless of whether you have investments yet. Below I will outline the value provided by hiring a professional to manage your investments.
Adding stocks to your mix
Once you have investments, a professional will help you access the kinds of investments that will work toward your goals. To streamline the discussion, you need a portfolio with the right exposure to stocks (or stock mutual funds). Stocks are shares of ownership in a company. Mainstream company stocks have provided compound returns of 7% for nearly 100 years, more than 3 times the rate of inflation. I mention inflation because the cost of what you buy will go up, but cash loses value – not dollars, but purchasing power – over time. One dollar today will be worth about forty cents in 30 years.
Stocks are an opportunity for investors to generate wealth and are essential for most Americans to achieve the long-term results they desire. Yet, while most of us delight in buying just about anything on sale, when it comes to the stock market, we avoid investing when it’s decreased in value. There are other categories of investments that will be included in your portfolio, with varied complexity; however, having the right mix of stocks is an important first step.
Behavioral guidance
Stock investing is closely connected with volatility. The barrier to getting (and staying) invested is the human mind, which struggles to distinguish a market cycle from a real risk of permanent loss. For every one part positive emotion you experience from investment gains, you feel two parts negative emotion for an equal amount of loss.
Human behavior and successful investing do not go hand-in-hand. Panic in moments of market stress is common and interferes with even the most disciplined, unaided investors. Volatility is represented in the media as “you might lose it all” compared to a professional that regards it as neutral, or even an opportunity. The only way to fully participate in the return of stocks is to fully participate in their temporary declines, which can be accomplished with the help of a professional that provides behavioral coaching through market cycles.
Income planning
This is the process of making sure you don’t run out of money in retirement. Moving away from full-time work is complex because it includes an identity shift, aging, decision-making, a lifestyle change, and other transitions that affect your well-being, psyche, and relationships. You will want to seamlessly replace your paycheck by leveraging your portfolio, and increase that paycheck to keep up with inflation.
The money you need early in retirement will have a different investment strategy than the money you need 5, 15, or 30 years into retirement. You may want to layer in unique solutions to cover the likelihood of long-term care, or one to increase your fixed income sources (similar to Social Security). You may want support to leave money to your heirs or valued causes.
Lifetime tax benefits
Taxes cannot be overlooked when it comes to a) the type of account that your assets are located in, b) having the investments within your accounts managed tax-efficiently, and c) deciding where to invest new money through the lens of lifetime tax benefits. Taxes are a significant expense, both paying capital gains taxes year to year and paying income taxes in retirement. There are ways to ease your lifetime tax burden with careful investment planning.
Business investment planning
Small business owners have an opportunity to choose from a variety of retirement plans. Many get advice from an accountant on the optimal choice, which typically directs the owner to maximize the tax deduction for the current year. Having a customized strategy with a team of professionals, including your CPA and an investment advisor, can help you to accelerate your results by maximizing the contribution limits you are eligible for and considering the lifetime benefits of various tax options.
Summary
The question for you to consider is, does it seem probable that hiring a professional investment manager will:
• Either cause your lifetime portfolio return to be at least 1% a year higher than it would otherwise have been,
• And/or save you the equivalent of 1% a year in time, effort, and worry,
• And/or save you more than 1% a year in the cost of mistakes she may be able to help you avoid?*
Your finances become more complex as your portfolio grows. With tailored advice from the financial planning process, investment management is the next level of sophistication to enable you to make progress. The fee pays for behavioral guidance, delegating the allocation of stocks and other appropriate investment selections, increasing your tax efficiency, careful income planning and tailored business solutions, among other benefits. The cost of a professional is designed to be a fraction of the value you receive in return.
*Nick Murray Scripts 2019 www.nickmurray.com Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, and Member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Spring Hollow Financial, LLC and Cambridge are not affiliated.
