...Or a better question may be, “why you need a Financial Advisor”
There is an obvious bias, being that I am a Financial Advisor. Navigating the financial markets on your own and investing with confidence isn’t easy- particularly when heightened volatility has become the norm. Enlisting the help of a financial advisor is an effective means of ensuring that your financial goals are met. Here are several reasons why you want to work with a Financial Advisor.
Choose the right investment mix- to generate better returns.
Investors who do not have a financial advisor may invest too conservatively for their age and not have enough exposure to growth assets, such as equities, that can deliver superior risk-adjusted returns over the long term. The result? These investors can end up holding an excessive amount of low-risk, low-return investments, such as guarantee investment certificates (GICs) or government issued binds, and may therefore not reach their long term investment goals.
A financial advisor encourages their clients to invest in equities. Recent data shows that when advisors encouraged equity market participation, investor returns were 6.6% above the risk-free benchmark (10-year Canadian Treasury bills). Based on a $100,000 investment, the results are staggering. This could mean an extra $622,000 in growth over 25 years compared to the risk-free benchmark. What could that extra growth mean in real life? Examples include post-secondary tuition for 20 grandchildren or a Mediterranean cruise for two, every year for 20 years.
It is important to remember that short-term volatility can arise when seeking the long-term growth potential of riskier asset classes like equities. However, over time, the impact of short-term volatility diminishes.
Follow a disciplined plan – to save more and reach your long-term goals.
We are living longer than we ever have before: the average life expectancy has reached 79 for men and 83 for women. While this is great news, a longer life expectancy brings with it additional financial challenges. No matter what life stage you are at, it is important to determine your long-term financial goals. What kind of lifestyle do you want during your working years? When do you want to retire? Once in retirement, what income will you need to live the lifestyle you want?
Research has shown that investors who worked with a financial advisor for a period of 15 years or more had 2.5 to 3 times greater wealth than those without a financial advisor. This is a significant number that could mean a world of difference to your comfort before and during retirement. Simply put, a financial advisor can help you create a disciplined plan to help you reach your goals and, most importantly, help you stick to that plan.
Control emotion-based behaviours – to avoid making irrational investment decisions.
It is understandable that if news headlines are screaming about trouble in the financial markets, some investors may feel panicked and make investment decisions that could hurt them in the long run. It’s moments like these when financial advisors can help steer investors away from making emotion-based decisions that could jeopardize their long-term financial goals.
Here are some examples of typical investor behaviours, which an advisor can help you, avoid:
Herd mentality: The tendency to follow the crowd, often chasing returns after they’ve already been achieved.
Anchoring: When someone ignores the underlying fundamentals of a business and buys a stock that has suffered a sudden drop in price, solely with the thought that it’s destined to rebound to the previous high water mark.
Loss aversion: The emotional response to market declines (however short term they may be) is dramatically stronger than when markets make gains. Losing money is more painful for people than the satisfaction they experience when making money.
Familiarity bias: One way this manifests is in “home country bias,” e.g., when Canadians invest the majority of their assets in the Canadian market even though it makes up only a fraction of the world’s investment universe.
Overconfidence: This behaviour occurs when people think they are better at doing something than they really are, or that they can “outsmart” the market.
Next step
If you do not have a financial advisor, we recommend you speak with one. A financial advisor can help you make important changes to your portfolio that will get you on your way to achieving your long-term financial objectives.
If you do have a financial advisor, it is likely that you are already on the right track. But remember: it is important for you to tell your advisor of any significant life changes, such as receiving an inheritance or losing your job that may require an update to your financial plan.
In the meantime feel free to contact me if you have any questions regarding this article or financial review.
This material shall not be construed as a solicitation or an offer. The securities mentioned may not be considered suitable for all clients. Before making any investment decision, contact your investment advisor to discuss your investment needs.” “The information contained in this report has been drawn from sources believed to be reliable. Argosy Securities Inc. However, its accuracy or completeness is not guaranteed, and Argosy Securities assumes no responsibility or liability. Argosy, its directors, officers and other employees may hold positions in the securities mentioned herein
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