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Nov. 23, 2021, 8:04 p.m. EST

When is it worth hiring someone to manage your money?

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By CD Moriarty

Deciding how to invest your money is a process, not a one-time decision. You can turn to books and articles for insight, but money is personal, and one size does not fit all.

For example, portfolio allocation is a simple concept; the complexity comes with your age, personal risk preferences and work retirement plans. So you may want help at some or all stages in your journey.

But what is worth paying for? Here’s what to consider before you hire someone.

Understand what you need

A free and simple program where you drop in your data online offers basic advice and is a good fit if you have only one financial goal, like saving for retirement. As you consider saving for competing goals like your children’s college education, a home and retirement, take the time to a professional who can help you balance your goals while creating financial wellness.

If you have a partner with additional goals, having an objective third party may be essential to setting priorities and working out a long-term money plan. Learning together is good for your finances and relationship

Opinion: Want a better relationship? Talking about money will help

Another reason to consider professional help is if you want someone to calm you down when the stock market goes haywire and keep you on track to meet your goals.

If you are only looking for someone to manage your money and do better than the stock market, you may want to reconsider. Even the best professionals struggle to do this consistently. Beware of the fancy math tricks some use to convince you of their skill .

If you are looking for is help with your retirement plan, many employers offer advice through an Employee Assistance Program (EAP), or the investment firm handling the plan may offer seminars. Retirement plans have mutual-fund options that are targeted to match your retirement date, which is one simple way to invest.

Know your limitations as well as your strengths. Be intentional; break down your money questions into smaller decisions.

Overestimating your skill is what happened to a client who inherited $80,000 from a great uncle. Despite having no financial or investment background, he decided to invest the first $30,000 in three stocks that he believed in. By the time the remaining $50,000 came through six months later, that $30,000 had become $12,000. At that point, he knew he needed guidance and was willing to pay for a consultation.

Dig deeper: Do you really need a financial adviser? Take this six-question test to find out

Know what advice costs and how you are paying for it

Setting up an account may be free, but trades may cost you. All mutual funds have underlying costs, but those management costs and fees vary tremendously; be sure to compare expense ratios as part of your research, as some charge a “load”, or commission, when you buy.

If you hire a firm to look after your money, you likely will be charged a percentage of your assets under management (AUM). Generally, this is about 1% of your assets each and every year whether your investments go up or down. Depending on how much (or how little) money you have, a firm may send you to a junior employee – or decline to take you as a client.

A lower-fee alternative could be investment firms like Fidelity and Vanguard. They will help you come up with a simple financial plan and suggest mutual funds. A warning: the advice will be fairly generic, and their staff move around, so you may regularly be dealing with a new person. But you may still want to consider what they have to say, especially if the first consultation is free.

Then there are large full-service firms. Historically what they did was clear – buy and sell stocks. Now they earn all sorts of fees and commissions when helping you. Understand that salespeople go by many titles. Be aware of the myriad ways they may be getting compensated. Ask if you aren’t sure.

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