DIY Investing – Do you Need a Financial Advisor to Start Investing?
January 8, 2019Last Updated on May 23, 2023
Are you thinking about investing to turn your dollars into even more wealth? If you are looking into ways to invest your funds, there are a few ways to do it. One way is to hire a financial advisor to provide financial services, but some people like to try investing on their own with some DIY investing strategies. Either way, here are some things you should know.
Types of financial advisors
There are several different options for financial advisors. Each type of financial advisor has strengths and various fees for service. You’ll want to pick the right financial advisor based on what you’re looking to do with your money, may want to pick a specific type of financial advisor. Let’s review what each type of financial advisor does.
Accountant
An accountant or CPA can help with several different situations and types of knowledge. For instance, an accountant could help you hire and pay a nanny or do your taxes. They might specialize in certain things like being an entrepreneur or freelancing. Make sure you meet and vet your potential accountant to ensure they can do the type of advising or planning you need.
Investment Adviser
This type of financial adviser is someone who can advise you on various types of securities either as a single consultant or as part of a larger firm. They are registered professionals through the Securities and Exchange Commission (SEC) or other applicable state agencies and have to have a securities license to actually sell securities products. This might require a licensed securities representative, like a stockbroker, to make the transaction happen.
Stockbroker
A stockbroker is someone who is typically licensed by a state to sell stocks, bonds, mutual funds, and other types of securities. These financial professionals usually earn a commission on their transactions, which is how they make money. There’s quite a bit of regulation for the profession including organizations like the Financial Industry Regulatory Authority (FINRA).
Financial Planner
Financial Planners or Certified Financial Planners (CFPs) are often employed or certified through larger agencies or even global companies that offer their own types of accounts and services. They can help you work toward a number of different financial goals based on a large spectrum of products. They might advise you about retirement, short or long term investing, saving for education, or managing other financial assets. They make money either based on fees or on commissions from the products you buy through them.
There are other options like Estate Planners, Attorney, and Insurance Agents, but they tend to deal with more specific financial situations and less with broad investing knowledge.
A really important factor in picking a trusted financial advisor is looking at their expertise, reputation, and how well they fit with your personality and service needs. Don’t pick an advisor who is only available 9am-5pm if you work long hours and prefer to visit in person, for instance. For example, if you’d rather talk via email or use online tools, old-school professionals with a smaller operation might not have the digital infrastructure you’re looking for. Similarly, you want to work with someone you trust, so make sure their demeanor is a good fit for you.
If you decide that a financial advisor is not for you and instead you want to do your own investing, you also have several options for how you can approach investing.
DIY Investment Strategies
Brokerage Accounts
Brokerage accounts are a way that people can try their hand at DIY investing. You’ll need to set up an online brokerage account first. Once your online account is set up, you can do research and look into what experts are saying about different companies. Look for advice as to what to buy or avoid, keep or sell.
Apps
There are lots of different types of investing apps. You can try something simple that rounds up your debit card purchases and automatically invests very small dollar amounts called micro-investing, for instance. You might want to try your hand at an app that allows you to trade stocks. Some apps have higher fees than others or are paid apps while a few offer free trades. A different type of investing app that you can try would be one that focuses on your retirement, allowing you to move money around for your retirement funds. There are lots of options! Just be sure you look at the fine print and read reviews to see what kinds of experiences other people are having and what the legal details are.
Other Online Tools
Various websites and types of software exist to both help you research investing and to facilitate online transactions. Just like apps, there are lots of options based on the type of investing you want to do and how you want to do it. Just do your homework and look for reputable tools before you get signed up.
Pros and Cons
With something like an app, you avoid the fees that come with some types of financial advisors. On the other hand, you don’t get the personalized attention that financial investor can offer you. If you invest for yourself, you have a lot of control and can potentially save money on fees again, but you also run the risk of making some expensive financial mistakes if you don’t know what you’re doing. Make sure you know the pros and cons of any of these DIY investing strategies before you start so you don’t end up between a rock and a financial hard place.
Tips for How to Invest Smart
Investing successfully can be really challenging, which is why people should start small. Don’t invest a bunch of money in risky stocks hoping to make a quick fortune. Instead, set aside a small fund to use for investing and start watching and learning before you do anything. If you can’t afford to lose money, go with more stable investments that will earn less but also likely won’t lose much if anything. Logic is a far better guide than emotion when it comes to investing. Sure, a hunch might make someone rich, but plenty of people have lost fortunes to their hunches. The math works out in your favor if you look at logical options and stick to a smart plan.