Considering engaging a financial advisor but not sure if it’s the right time? That’s a common concern for many potential clients. While only you can decide upon the right time to start working with an advisor, there are several often-overlooked downsides of delaying that are worth considering.
While the specific risks are of course based on your particular financial situation, here are a few common reasons you may want to engage an advisor sooner rather than later:
Idle cash losing value
While it may seem like keeping your money in a checking or savings account until you’re ready to invest is a good plan (and it’s certainly better than stuffing it under your mattress), money stored in these vehicles may earn little to nothing in terms of interest. As a result, the purchasing power of that money can be slowly whittled away by the effects of inflation. So while the balance at the bottom of your statement may indicate growth in the account, you’ll need to be earning in excess of the inflation rate in order to really be growing your assets.
Staying in poor investments (or trying to get out at the wrong time)
If your money is already invested somewhere, but not in a way that’s appropriately tailored to your financial needs and risk tolerance, then the cost of maintaining the status quo can be considerable. Depending upon market conditions and your level of portfolio diversification, staying in a poor investment (or being forced to get out at a bad time) could end up costing you a significant amount of money.
Don’t let yourself get forced into making a bad trade simply because you need immediate liquidity. An advisor will be able to help you plan ahead for your future cash needs, and in the event you do need cash urgently, will be able to help you secure it in an efficient manner.
Having an overly concentrated portfolio
If your portfolio is highly concentrated within one sector or company, you may also have substantial risk and exposure. This is frequently the case for those with significant stock-based compensation from a current or former employer, or those whose holdings are limited to several index funds.
While index funds have low fees and holdings in a broad swath of individual companies, it is far too often that people’s investment holdings are limited to several index funds that track the S&P 500 Index. In this case, people may have all of their money in large-cap domestic stocks, with no exposure to small-cap, mid-cap, bonds, or international holdings.
Unless done as part of a purposeful strategy, it’s often best to avoid having very strong concentrations within any one area in order to mitigate potential downside. An advisor will aim to understand your risk tolerance and perform a deep dive into your current holdings in order to make sure you don’t have any unexpected vulnerabilities due to portfolio concentration.
Inaction now can cause increased pressure later on
Regardless of your age, the earlier you can get started with a financial plan and thoughtful investment strategy, the more flexibility you’ll likely have later on. While it may seem like financial planning isn’t something you need to worry about until you have kids, buy a house, or start thinking about retirement, the reality is that the financial decisions you make earlier on in your life will directly impact your ability to finance those later-life goals.
By kicking the can down the road on engaging an advisor, you may ultimately be creating a situation in which your investments (and you) need to work even harder in the future. And as any advisor will tell you, it’s much easier and more sustainable to have a steady financial plan rather than putting yourself on a financial crash diet to make up for lost time later on.
Paceline Wealth Management is happy to offer a complimentary portfolio review as a way to help you understand the areas of risk and opportunity in your current investments. Contact us today to get started.
This blog was written by Jeremy Bohne, Principal & Founder of Paceline Wealth Management. Paceline is a fee-only investment advisor serving clients in the Boston area, and on a remote basis throughout the country. Paceline specializes in helping tech and biotech executives, physicians, and those seeking financial planning services.