I recently read a paper from Vanguard in which they said that having a financial advisor could boost your investment return over time by as much as 3%.   I know that saying this is self-serving, and I’m certainly not suggesting that this would guarantee a 3% increase over a non-advised portfolio.  I did, though, feel that Vanguard’s breakdown of five wealth management principles that advisors bring to the table is enlightening, and I think is worth looking at and thinking about:

1. Behavioral coach – investment advisors help clients keep a long-term perspective, and also help them to stay disciplined.  Vanguard says this alone could result in a greater return of 1.50% annualized.

2. Asset location strategy – advice on allocating assets between taxable and tax advantaged accounts in order to add value and minimize taxes.  Vanguard gives this up to 0.75%.

3. Utilizing cost-effective investments – for a fee-only financial advisor (i.e., no commissions) such as myself, it only makes sense to use low/no cost investments, which is also in clients’ best interests.  Vanguard assigns this up to 0.45%.

4. Rebalancing – done on a regular basis, this ensures that the portfolio’s risk/return is in line with the desired asset allocation and long-term goals.  Vanguard says this contributes up to 0.35%.

5. Spending strategy implementation – for those who are retired, knowing how and from where to spend money (e.g., withdrawing from taxable accounts before tax-advantaged accounts) is relevant to portfolio returns.  This, per Vanguard, can add up to 0.70%.

Does this imply that someone can’t or shouldn’t do it themselves?  No.  But, just like everything in life, it’s good to know what you should do yourself, and what you should outsource.  If you are a disciplined person and will take the time to focus on your investments, then you should continue to do so.  If you aren’t and can’t, then you should consider hiring someone who is; it could be more than worthwhile!