Before we understand the importance of financial advisor, answer this one simple question.
Did you take the help of a CA or a tax consultant to file your ITR returns this year? While it can be done for free on the income tax department, we still consult our tax consultant so that we don't go wrong anywhere.
However, when it comes to managing money, most people do not want to take any help from financial planners or advisors. There are many reasons for this attitude. Some think it is a waste of money, while others believe that they can handle their money.
Financial advisors can provide immense value to any individual’s portfolio.
Here’s why you need a financial advisor:
Assess your financial health:
An advisor examines an individual’s financial situation and health. He may pinpoint weak points that need strengthening. For example, the advisor may alert you about wasteful expenditures. He may identify investments that are not giving optimal returns and accordingly suggest you the right way forward.
Teach you the basics of investing:
There are many resources on Google through which you can learn the basics of investing and personal finance. However, there is a high probability that you get lost in this maze. Some articles will suggest plan A, while others will tell you to follow plan B. This can increase the confusion. And as a result, you may postpone starting your investment at a later date.
When you have a financial advisor, he or she will make sure that you understand the basics of investing. The world of finance is vast. Hence, it is always better to know and understand the parts that are important to you.
Choosing the right products to invest and aligning your investments with your goals
Even if you know the basics of investing, choosing the right products to invest may be uphill for many. It is because there are different types of products in a particular category. Also, the companies keep on coming up with products, some of which are too complicated to understand.
A financial advisor will suggest the right financial products for you and ignore the noise. Financial advisors regularly meet the investment teams of the financial products to understand their investment rationale. For example, in case of mutual funds, financial advisors use a lot of ratios and parameters that help them to collate the list of top funds under the different categories. In addition, they regularly compare the various financial products with its peers to suggest you the right product.
Selecting the investment product will not mean much if it is not aligned with your financial goals. Not just your financial goals, the investment product should also go with your risk-taking capacity and time horizon. E.g., the best small-cap fund may not be the right choice if your investment horizon is just three years.
Help you to stay focused on your goals
While we may like to believe that personal finance and investing is all about numbers and selecting the product that has given the highest returns in the recent past, it is mostly about habits. It has more to do with behaviour and discipline than returns. In this journey, many investors tend to make avoidable mistakes.
Investors are likely to be carried away by discussions with their colleagues and friends. They become tempted to follow the footsteps of their friends, even without knowing if that will be the right approach for them or not.
In this scenario, the financial advisor will handhold you and suggest you the right steps and make you stay on the course to reach your financial goals. Also, financial advisors carry out portfolio review at regular intervals to make sure that you are on the right track to achieve your financial goals.
These were the four main reasons why having a financial advisor is the best that you can do for your financial health.