Should I hire a financial advisor?

[Sigmapolis]

We enroll annually in the 401k contribution plan annually, and when I took the job a little over eight months ago I was coming out of graduate school flat broke(but at least not in debt). When it comes back around to enroll for the following year I will probably up my contribution, but when I first enrolled I wanted to establish an emergency savings account, which I've now done.

You should max this each year. Set it as high as you can stand and still keep your head above water (assuming you have an emergency fund, which you do) on your paychecks week-to-week for the first part of the year until you max it out.

After that, the second half of the year, when you have extra money laying around, then you can save in a "secondary" fashion or use the money to "play." Live the appearance of hand-to-mouth while contributing and then you can loosen up once maxed.

 

[cy4life94]

Personally, I think you can get almost all the financial advice you need from:
https://www.bogleheads.org/
especially if you start with their wiki.
It can be a little overwhelming and it has it's pitfalls of any online forum, but I'd try learning a little first on your own before committing to an advisor.

I agree with this. Before getting an advisor, I would read “The Bogleheads Guide to Investing” and then make your decision. Their philosophy is not for everybody, but you should be able to get enough information to start off.

 

[kingcy]

Why pay someone to invest your money? Why not put it in a Fedilty, or Vangaurd account and take out the middle man. You can also put it in Real Estate. There are good financial advisors out there, there are bad ones. Most of them are good at making money for themselves.

 

[capitalcityguy]

Why pay someone to invest your money? Why not put it in a Fedilty, or Vangaurd account and take out the middle man. You can also put it in Real Estate. There are good financial advisors out there, there are bad ones. Most of them are good at making money for themselves.

There are plenty of reasons to pay someone and plenty of reasons not to. It depends on the individual and where their interests and motivation lie.

Too many people don't do anything and some make some very lousy decisions. Not because they are dumb or lazy, but because they don't find enough interest to stay motivated in learning what they need to learn about personal finance and then keeping up on it.

This stuff interests many of us. For many, it does not.

Same reason some on here would never think to hire someone to make a repair on something on their car or house, where others prefer to hire out these things.

No one answer is right for everyone as we all have our own interests and skill sets.

 

[CloneGuy8]

Double your 401k contribution, then put another $5500.00/year in a Roth IRA

 

[Sigmapolis]

There are plenty of reasons to pay someone and plenty of reasons not to. It depends on the individual and where their interests and motivation lie.

Too many people don't do anything and some make some very lousy decisions. Not because they are dumb or lazy, but because they don't find enough interest to stay motivated in learning what they need to learn about personal finance and then keeping up on it.

This stuff interests many of us. For many, it does not.

Same reason some on here would never think to hire someone to make a repair on something on their car or house, where others prefer to hire out these things.

No is to right answer for everyone as we all have our own interests and skill sets.

Just us reading and posting in this thread make us that class of people who have some interest, expertise, or skill in this to the point we (mostly) do not need the help.

Double your 401k contribution, then put another $5500.00/year in a Roth IRA

All correct, but one small PSA -- you can earn too much to do an IRA.

 

[Trice]

My advice is this...just save as much money as you possibly can, starting as early as you can, and do it consistently. Save 15% of your income for retirement, 20% if you can, and you will be in great shape. (And by that I mean 15-20% total, so if your employer puts in 3% of your salary, then your contribution is 12-17%.) Contribute to the 401k until you max out the match, then max out a Roth IRA, and if you still have room to contribute put the rest back in your 401k.

If you can maintain that contribution level, invest appropriately and responsibly for your age (like diversified index funds or a target date fund), and then resist the temptation to tinker with it or pull it out when the market dips, in 10-15 years you will be well ahead of the vast majority of people.

Do all of the above and you probably have little need for a financial advisor unless your situation becomes more complex. (Which of course it will with marriage, kids, home ownership, etc...but not so much so that you can't handle it if you have a willingness to learn.)

If you just want the extra outside assurance an advisor offers, hire a fee-only advisor. They're not nearly as common but they charge by the hour and don't sell products - therefore they have no built-in conflict of interest. Most/all abide by the fiduciary standard. Have them draw up a plan just to set you off on the right course, and it's possible you'd never need their advice again. But it's clear you're wary of advisors, so if you choose one just avoid a planner that charges you a percentage of assets each year. It won't appear to cost much now, but as you accumulate assets the advisor will get a bigger chunk and their fees will be a huge drag on your investment returns.

 

[capitalcityguy]

Just us reading and posting in this thread make us that class of people who have some interest, expertise, or skill in this to the point we (mostly) do not need the help.



All correct, but one small PSA -- you can earn too much to do an IRA.

I would say it is a good indication they the collective "we" are interested enough to be somewhat educated on the subject and thus not flying blind. People's interests and priorities can change overtime however, so I don't think anyone should be shamed for thinking they might want to use soem professional help.

OP already provided salary. 75k. This isn't really close to earning too much to contribute to Roth. (limitations start at $133k for single filier for 2018)

 

[CycloneDaddy]

Another thing to look at is maybe starting a 529 plan for future kids or nieces/nephews. I have a friend that has 30k in a 529 and I doubt he ever has kids. He is going to have some happy relatives.

 

[capitalcityguy]

If you just want the extra outside assurance an advisor offers, hire a fee-only advisor. They're not nearly as common but they charge by the hour and don't sell products - therefore they have no built-in conflict of interest. Most/all abide by the fiduciary standard. Have them draw up a plan just to set you off on the right course, and it's possible you'd never need their advice again. But it's clear you're wary of advisors, so if you choose one just avoid a planner that charges you a percentage of assets each year. It won't appear to cost much now, but as you accumulate assets the advisor will get a bigger chunk and their fees will be a huge drag on your investment returns.

Just to clarify as I could see some confusion arise here.

Commission based advisers get paid a commission on what they sell you. They do not make anything on the size of your portfolio as it grows.

Fee based adviser gets paid a fee based on percentage of your assets. The larger your portfolio grows, the more they make.

You can also hire hourly based financial planner where you simply pay for their time. i.e...pay an hourly rate for their services.

 

[Frak]

I would look at buying a house so that rent money wasn’t going to waste.

 

[hiltonisheaven]

Congrats to the OP for a great start in your career. I'm all about doing it yourself. I had a couple of money-grabbing 'advisors' when I was your age and eventually figured out the scam. I don't know how those guys sleep at night.
Over the years, I've read or heard similar versions of the following link from various places like mrmoneymushtache, dave ramsey, Bogleheads, Robert Kiyosaki, some tips from my parents, etc. But the following is the best I've ever seen it laid out. Follow the link for the Why this investment order makes sense and commence winning the money game.
https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153
0. Establish an emergency fund to your satisfaction
1. Contribute to your 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield (2.86% as of March 8, 2018).
3. Max HSA (Single 2018: $3,450, Family 2018: $6,850) including any employer contributions
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level ($5500 for most ppl)
5. Max 401k $18,500 for 2018 (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)
6. Fund a mega backdoor Roth if applicable.
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.
8. Invest in a taxable account and/or fund a 529 with any extra.

 

[nfrine]

Congrats to the OP for a great start in your career. I'm all about doing it yourself. I had a couple of money-grabbing 'advisors' when I was your age and eventually figured out the scam. I don't know how those guys sleep at night.
Over the years, I've read or heard similar versions of the following link from various places like mrmoneymushtache, dave ramsey, Bogleheads, Robert Kiyosaki, some tips from my parents, etc. But the following is the best I've ever seen it laid out. Follow the link for the Why this investment order makes sense and commence winning the money game.
https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153
0. Establish an emergency fund to your satisfaction
1. Contribute to your 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield (2.86% as of March 8, 2018).
3. Max HSA (Single 2018: $3,450, Family 2018: $6,850) including any employer contributions
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level ($5500 for most ppl)
5. Max 401k $18,500 for 2018 (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)
6. Fund a mega backdoor Roth if applicable.
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.
8. Invest in a taxable account and/or fund a 529 with any extra.

Thank you Mr. Ramsey. You forgot pay cash for cars.

 

[Cyched]

All correct, but one small PSA -- you can earn too much to do an IRA.

So throw in as much as you can now before you become Mr Moneybags

 

[capitalcityguy]

I would look at buying a house so that rent money wasn’t going to waste.

If 2008 (should have) taught us anything, to buy or not to buy (and what) regarding housing isn't the slam dunk decision people often thought it was in the past.

 

[CtownCyclone]

You should max this each year. Set it as high as you can stand and still keep your head above water (assuming you have an emergency fund, which you do) on your paychecks week-to-week for the first part of the year until you max it out.

After that, the second half of the year, when you have extra money laying around, then you can save in a "secondary" fashion or use the money to "play." Live the appearance of hand-to-mouth while contributing and then you can loosen up once maxed.

Be careful doing this. Make sure you still get the company match even if you're not contributing on a particular paycheck. Just because you've put up the matching percentage early on, your company may only match what's on each check, not the total.

 

[capitalcityguy]

Be careful doing this. Make sure you still get the company match even if you're not contributing on a particular paycheck. Just because you've put up the matching percentage early on, your company may only match what's on each check, not the total.

Excellent point! Some, not all, 401k's do a "true-up" after the year. IF yours doesn't, you won't want to stop deferring early but rather spread it out to continue receiving the match. If they true-up after the year, it won't matter.

 

[KnappShack]

If 2008 (should have) taught us anything, to buy or not to buy (and what) regarding housing isn't the slam dunk decision people often thought it was in the past.

And the new tax law makes it less attractive too.

 

[CtownCyclone]

Excellent point! Some, not all, 401k's do a "true-up" after the year. IF your'sdoesn't, you won't want to stop deferring early but rather spread it out to continue receiving the match. If they true-up after the year, it won't matter.

I had some coworkers discover that (at the time) my company did not "true up." So they missed out on a nice chunk of change that year.

I never wanted to jack around with my contributions all that much, so I did the "set it and forget it" method until raises came through.

 

[SpokaneCY]

I'm a research scientist in my mid 20's, and am lucky to be well off. I have a stable job making ~75k a year, no auto/student loan debt, and am very happy with my situation. My only real expense is rent which is about $800 per month.

I have been putting the max percent that my company will match (6%) from each paycheck towards my 401k for retirement. I put another large chunk into a higher interest online savings account and at this point have close to 15k in savings, which is more than enough for an emergency fund.

What should I do with some of that extra money? Should I hire a financial advisor to help me with these decisions? Will that person just tell me to put 20k into an index fund? I'm very hesitant to do so because they seem like used car salesman, especially if their compensation is all commission based. I know that some CFP's are fiduciary and are required to have their clients best interest in mind, but I am still weary about the whole process. I have a master's degree in the hard sciences, and I know that I'm smart enough to manage my own money. I do have some interest, but I have a lot of questions. I know it will take some time to learn best practices, and I don't know if it is worth it to go through all that trouble if I can hire someone to do it for me. I don't know if a financial advisor will do that much better of a job than I could learn to do myself. Especially considering some of the people I know that are now successful financial planners for major firms. It makes me think maybe I could do a much better job on my own. What has your experience been with financial advisors?

Depends how savvy you are and how much time you'd like to devote. The general feeling is at your age find a broad-base market fund and let it sit and sit and sit. Wife and I went the other route and have had professional management for the last 20 years (getting ready to retire at 55 if things work well).

If you go advisor route, be leery of ANYONE who does anything more than manage stocks and bonds mutual funds... When they start pushing proprietary funds with higher loads, when they start trying to sell you annuities, life insurance, zero interest home loans - RUN as they do NOT have your financial success in mind.