From robo-advisers, to financial planners and fee-only advisers, you have options regarding your financial future.n/iStockPhoto / Getty Images
Do-it-yourself investing has plenty of benefits. It’s low cost and gives you total control over your accounts. It also leaves you responsible for making your own investing decisions, which can feel daunting.
When you have a financial adviser, they’ll invest for you. They can also provide guidance with general financial planning. A financial adviser will only work with you, though, if they invest your money.
When you become a DIY investor, you’ll have to turn to other sources of support. Thankfully, you have options.
For help with making investment decisions, a robo-adviser can step in. A robo-adviser is a service that uses a software program – powered by humans, not artificial intelligence – that can tell you what an appropriate asset mix is for you based on how you answer a set of questions.
The asset allocation decision is a common concern for DIY investors – deciding on how to allocate their investments between stocks, bonds and cash is an important decision that a financial adviser would normally help with.
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Choosing which securities and funds to invest in is another stumbling block, since there are so many choices and opinions. A rob-adviser usually chooses exchange-traded funds, or ETFs, that fit with your asset allocation, and places all the trades for you. In my experience, robo-advisers usually get it about right as long as the client has answered the questions correctly.
Although a robo-adviser isn’t a pure DIY investing approach, it’s a stepping stone. After you see what the robo-adviser does for you and you start to feel more comfortable with investing, you can always switch over to a DIY platform later on. The robo-adviser is a great way to get started.
For more comprehensive help with your finances, not just investing, you can hire an advice-only financial planner, or AOP. An AOP, sometimes also called a fee-only financial planner, is just what it sounds like: a financial planner who only gives advice. They do not manage your investments and they do not sell products.
Because they are not affiliated with a financial institution, and because they do not receive compensation in any form other than what you pay them directly, you get an unbiased financial plan that is tailored to you.
You will get advice on many aspects of your finances, including your investments. Although you won’t get specific investment recommendations, you will get guidance on what your asset allocation should be.
With this information, you can use an all-in-one ETF that matches that allocation and bingo, you’re invested. DIY investors and advice-only financial planners make a dynamite combination.
Another option for getting financial planning help is to use online DIY financial planning software. With these programs, you can enter your personal and financial information, then create your own plan. The software will help you figure out how much you should be saving for retirement, how to allocate your money between spending, saving and paying down debt, and a lot more.
You can run different scenarios and update the plan any time. There are several available such as The Money Ready App and Adviice. Some platforms also have financial planners or coaches who you can meet with to go over your plan to make sure you fully understand it.
Which combination you choose depends on how confident you are in your knowledge about investing and financial planning. If you are confident, taking the DIY route for your investments and using a DIY financial planning platform is a great option. It’s also the cheapest. If you need a bit more help, you could choose to use a robo-adviser along with an advice-only financial planner.
With all the developments in the financial industry over the past decades, you don’t have to choose between being a DIY investor who receives no help or paying a financial adviser to help you with everything.
There’s an optimal mix for everyone – you just need to figure out what’s best for you.
Anita Bruinsma is a Toronto-based certified financial planner at Clarity Personal Finance.
