Financial Advisor vs Self-Investing: Why Self-Investing May Not Always Be a Good Idea

If you are someone who loves a good Do It Yourself (DIY) challenge, whether it is fixing your own car or kitchen sink, you might think investing is just another task you can master on your own. And honestly, you are not entirely wrong. Self-investing, or DIY investing, is incredibly popular. Many people have managed their own investment portfolios and have seen great results. But there is another group of investors who swear by their financial advisors. They credit their financial stability and success to their guidance.

So that naturally brings up some questions – Should you hire a financial advisor or trust your instincts, go solo, and save money?

That is exactly what this article explores. Stick around so you can figure out what self-investing entails and why it is not exactly a golden ticket.

What is self-investing, and what are its pros and cons?

In simple terms, self-investing refers to managing your investments entirely on your own, without hiring a financial advisor or any other professional. You make all the decisions, choose the funds or stocks you are interested in, and build your financial portfolio solo.

Now, while this sounds easy and doable, it is also a big responsibility.

Self-investing is not just about picking a few stocks. It involves a lot more, such as:

• Defining your financial goals
• Understanding your risk appetite
• Figuring out timelines for each goal
• Picking the right investment and savings options
• Managing and tracking your investments
• Rebalancing your investment portfolio periodically
• Filing taxes and knowing how your investments are taxed

Whew! That is a lot, and yes, it can feel overwhelming. But for some people, it is totally attainable and maybe even enjoyable. Ultimately, it depends on your interests and time availability. Let’s break it down into the pros and cons so you can decide if it is the right path for you.

Pros of self-investing

• You are in control, and there is no external bias: One of the biggest benefits of self-investing is that you get complete control over your financial decisions. You make every single one of them and do not have to explain or justify your choices to anyone else. There is no external bias or pressure to follow someone else’s approach or advice.
• You pay fewer fees: Hiring a financial advisor can cost you more than self-investing. These professionals may charge a fixed fee or a percentage of your assets under management (AUM). When you self-invest, you cut that middle person out. The only costs you pay are related to the actual investments you choose and nothing else.
• You enjoy greater flexibility and convenience: You do not have to schedule meetings or wait for office hours. If you want to review your portfolio during your lunch break, go ahead! You could be lying in bed at night and suddenly thinking about changing your asset allocation. No problem! With self-investing, you have the flexibility to manage your money anytime, anywhere.
• It can be a learning experience: Self-investing can help you understand how markets work. It keeps you engaged and teaches you to get better at managing your money over time.

Cons of self-investing

• It can be confusing: Let’s be real, investing is not always straightforward. There are so many products out there – 401(k)s, mutual funds, Individual Retirement Accounts (IRAs), Exchange-Traded Funds (ETFs), bonds, Real Estate Investment Trusts (REITs), etc. Each comes with its own rules, returns, fees, lock-ins, and tax treatments. Understanding all of this can be overwhelming.
• It can eat up your time: While it may seem like you are saving time by avoiding advisor meetings, self-investing often takes up more time. You will need to research investments, monitor your portfolio regularly, stay updated on market changes, and do your taxes correctly. Finding that time can be tough.
• No professional expertise or guidance: The Internet has tons of information, and so do libraries. But this may not be the same as personalized advice from a financial expert who understands your situation. Flying solo can lead to errors.
• Your emotions can get in the way: How often can you really tell the difference between rationality and panic, especially when things go out of control? Being level-headed in the face of stress, peer pressure, etc., can be difficult and may lead to mistakes.

Is working with a financial advisor a better way forward? Let’s find out

The answer for many is yes. A good financial advisor is not just someone who picks stocks for you. They help you get from where you are today to where you want to be. They can help you eliminate investment errors, avoid panicking during market crashes, and ensure you do not miss out on opportunities along the way. Financial advisors for young adults can be especially helpful as they offer years of experience and expertise to navigate financial hurdles.

Let’s walk through the real benefits of working with a financial advisor so you can see if this path makes sense for you:

     1. They help you save time

Think about it, how much time do you actually have to read market updates, compare investment options, track performance, and rebalance your investment portfolio?

A financial advisor can take this load off your shoulders. They can analyze your financial goals, research suitable investments, stay updated with market trends, and keep your portfolio aligned with your financial needs. You just need to be available for a call or two and meet with them occasionally, and they can handle the rest in the background.

     2. They have access to better investment options

Sure, you can invest in stocks, mutual funds, and ETFs online. However, financial advisors often have access to investment opportunities you might not come across on your own. They work closely with asset management companies and brokerage firms, which gives them early access to new products or exclusive funds.

And no, they do not just throw all these options at you. They vet these investments and recommend only those that align with your goals, time horizon, and risk appetite.

     3. They can help you potentially boost your returns

Investing is more than picking something up and hoping it will grow. Timing, strategy, and discipline all matter. A financial advisor can help you with tried-and-tested strategies, such as buy low, sell high, tax-efficient withdrawal plans, and contribution-maximization techniques, that enable you to invest smartly at every stage of life. These strategies do not just protect your money. They can also help it grow better over the long term.

Sure, nothing is guaranteed. But having a professional on your side can help you avoid common mistakes that can potentially cost DIY investors a lot.

     4. They can teach you along the way

This might surprise you, but working with a financial advisor is a great learning experience. A good one does not just manage your money. They also help you understand how different investment vehicles work, how taxes impact returns, and what to expect from market cycles. Over time, you can gain a wealth of knowledge and become more confident in your decisions. If you are young and lack experience, hiring a financial advisor for millennials can be a good way to improve your knowledge.

     5. They keep your portfolio balanced and aligned

When your financial goals shift, you also need to alter your investments. A financial advisor can help you rebalance your portfolio to reflect any changes you may have seen in your personal and professional life. They adjust your asset allocation based on your needs and market movements.

     6. They can help you optimize your portfolio for taxes

Do you know one of the most underrated benefits of working with a financial advisor? Tax optimization!

Most people stop at the basics. But financial advisors go a step further. They can help you time your investments and withdrawals, use tax-loss harvesting strategies, claim credits and deductions you did not know existed, and structure your portfolio in a way that reduces your overall tax burden.

The result? More money in your pocket.

     7. They have been through tough markets before

Markets go up and down. Pandemics, recessions, political events, wars, and other events; there is always something around the corner that can impact your financial life. A well-experienced financial advisor has likely seen it all or studied about it and can help you ride out crashes, deal with financial setbacks, and stay on track when things get shaky. Their experience helps you avoid emotionally driven mistakes.

     8. They can offer flexible engagement options

Financial advisors are not just for the super-rich. Today, you can choose from different types of financial advisors, such as fee-only, commission-based, hourly, AUM-based, or whatever works for your financial situation. You also do not need to commit forever. Many financial advisors offer one-time consultations or even subscription models for ongoing support. You can select a model that suits you best.

Why is self-investing not always a good idea?

For many, especially millennials and Gen Z, who are accustomed to using mobile apps and seeking internet advice for everything, self-investing can feel like the ideal way to go. After all, why pay someone else when you can just figure it out yourself?

And yes, self-investing does offer a few benefits, including no financial advisor fees, full control over your money, and the flexibility to make decisions on your own terms. But while you might save money in the short term, self-investing can actually cost you a lot more in the long run. Here’s why:

• You do not know what you do not know

Let’s say you have picked a few stocks for investment. That is a great start! But have you checked how those funds align with your financial goals, your risk tolerance, your time horizon, and your taxes? Have you planned for things like inflation? A financial advisor takes a 360-degree view of your life and goals, not just your investments. They help you look at the big picture, something that is easy to miss.

They help you make decisions that are not just good but right for your situation. And that is particularly important when it comes to financial planning for millennials, who often juggle student loans and career changes.

• Mistakes can be expensive

With self-investing, you might make a few good calls, but what about the not-so-good ones? Investing without proper guidance increases your chances of losses, timing the market wrong, choosing high-cost, low-return investments, ignoring asset allocation, underestimating risk, and overreacting during market downturns.

And when your returns suffer because of these mistakes, the money you technically saved on the financial advisor fees starts to look very small compared to the money you could have earned.

• DIY can be stressful and overwhelming

Juggling multiple investments like real estate, 401(k)s, IRAs, crypto, and others can be a lot. Now, if you add tax planning, goal setting, retirement calculations, and estate planning to the mix, DIY investing can feel like a full-time job.

Most people do not have the time, energy, or financial expertise to do all of this well. And even if you do, wouldn’t you rather spend your free time living your life instead of stressing over expense ratios or rebalancing your portfolio?

A financial advisor simplifies this by taking care of the minute details while keeping you in the loop so you can make informed decisions without being bogged down by every little thing.

• There are affordable alternatives

Still worried about the cost? Don’t be.

You do not have to hire a full-time financial advisor and pay hefty fees. Today, you can work with fee-only advisors who charge by the hour or per plan. You can also use a robo-advisor for basic portfolio management at relatively low fees.  Additionally, you can book one-time consultations for specific needs. For instance, if you need assistance with tax planning or retirement, you can hire a professional for only these causes. You can also choose financial advisors who work on a commission-only basis. The point is you have options, and they can be tailored to your budget and comfort level.

So, what do you do?

Sure, you can give self-investing a shot. There is no harm in exploring it. But if you are new to it or if you have tried managing things on your own and found yourself stuck, it might be wiser to bring in a professional. Hiring a financial advisor is especially important if you are just starting out. There is no harm in needing help. In fact, getting expert guidance can be the smartest financial decision you can make.

If you are not sure where to begin, consider using a tool like WiserAdvisor’s free advisor match tool to connect with qualified professionals in your area. You will be able to choose someone who truly understands your needs.