Are you trying to decide whether to hire a financial advisor or stay on the self-investing route? Each path comes with its own set of advantages, disadvantages, and considerations. In this blog, we’ll explore the factors that can help you determine when it’s worth hiring a financial advisor vs opting for self-investing.
What does a financial advisor do?
A financial advisor helps clients make informed decisions about their money to achieve their financial goals. You can think of a financial planner as a personal finance mentor. Their role is to learn about you, provide you with personalized advice, guide you toward making informed financial decisions, and educate you about your options.
Some financial advisors may specialize in serving specific demographics, such as millennials or those who want to retire by 55. Others may focus on specific areas, such as retirement planning.
Financial advisors are compensated through either flat fees, a percentage of your investments, commissions, or a combination.
What is self-investing?
Self-investing, or DIY (Do-It-Yourself) investing, is the act of individuals making their own investment decisions and managing their investment portfolio instead of hiring a professional.
Self-investing can be empowering and help save you on financial advisory fees. However, it also requires a certain level of financial literacy, time commitment, and comfort with market risks. Additionally, it can be more expensive and risky over time than working with an advisor.
What are some advantages of hiring a financial advisor vs self investing?
- Save time: Self-investment requires considerable time and effort for research, analysis, and staying updated on market developments. If you don’t have time to do this, a financial advisor can do it for you. This is one of the main reasons why many people hire a financial advisor.
- Potentially higher returns: A study by Vanguard showed that advisors can potentially add about 3% to a client’s net investment returns each year. Another study showed that those who worked with a comprehensive financial advisor built about four times more wealth than those who had no financial plan.
- Peace of mind: Fiduciary financial planners are experts in their field so you can rest assured knowing that your financial affairs are in capable hands.
- Potentially prevent you from making emotional and expensive mistakes: Financial advisors provide an emotional buffer, offering objective advice during market fluctuations. This can help you stay patient when the market gets volatile and prevent you from making costly impulsive decisions.
- Access to diverse investments: Financial advisors have access to a broad range of investment options and can tailor asset allocation strategies to optimize returns while managing risk.
- Financial education: Financial planners provide ongoing financial education, empowering clients to make informed decisions, and understand the rationale behind investment strategies.
- An objective sounding board: According to a recent study, finances are the primary reason for relationship conflict in 40% of disagreements reported among people in long-term relationships. This may prevent you and your partner from achieving your financial goals together. The objective advice of a financial advisor can aid in smoothing over those conflicts and allow you to keep moving forward with your goals.
What are the disadvantages of hiring a financial advisor vs doing it myself?
- Financial advisors charge for their services: Financial planning is a service so there is a cost involved. Some financial advisors charge an annual fee while others make commissions when you buy certain investments. It’s important to understand how different financial advisors charge for their services. Either way, you do have to pay for their expertise.
- Conflict of interest: Commission-based financial advisors are compensated through commissions. This may potentially influence their recommendations. Always look for a fiduciary financial advisor who will be in your corner 100% of the time.
- Overlooking small accounts: Some financial planners may have minimum account size requirements, potentially overlooking individuals with smaller investment portfolios.
- Not every financial advisor is a good advisor: Before choosing a financial advisor, it’s important to do thorough research. We generally recommend interviewing 2-3 financial advisors and checking their references. You might find these 10 key questions helpful in your search for a financial advisor.
What questions should I ask myself when deciding between self-investing vs. hiring a professional?
- How comfortable am I managing my investments? Do I have the right knowledge and experience to manage my investments?
If you’re well-versed in financial markets, investment strategies, and risk management, self-investing may be a viable option. However, if you find the financial landscape daunting or lack the time to do extensive research, a financial advisor’s expertise might be invaluable. - How much time do I have?
Self-investing demands significant time for research, portfolio monitoring, and staying informed about market developments. Your financial advisor can handle these tasks for you, so you can spend more time on what you enjoy. - How complex are my financial goals?
If you have a straightforward goal, such as saving for a house, self-investing may be the best option. However, if your goals involve comprehensive financial planning, tax strategies, and diverse investment portfolios, you may be better off working with a financial advisor. - Will I make emotional decisions during market fluctuations?
Navigating market fluctuations without succumbing to emotional decisions is crucial for long-term financial success. Emotional reactions can lead to costly mistakes. A financial advisor can provide an objective perspective, helping you stay disciplined and focused on long-term goals.
Do I need a financial advisor, or can I do it alone?
There isn’t a simple answer to this question. There are several factors to consider, including the complexity of your finances, whether you have time to learn financial strategies, your comfort level managing investments, and your financial goals.
Self-investors save on advisor fees and get the self-satisfaction of learning about investing and making their own decisions. On the other hand, those who hire financial advisors typically get higher returns and more comprehensive planning. The right financial advisor can reduce financial stress, streamline your decision-making, and guide you toward achieving your financial goals.
Also, your finances naturally get more complicated over time. In your 20s, your finances tend to be simpler than later on in life. In your 30s and 40s, you may start earning more, buying property, investing more in your retirement, or trying to save for your child’s education.
As your finances become more complex, a financial advisor can play a crucial role, particularly when time becomes a limited resource. Their expertise can help you navigate the complexities of evolving financial goals and responsibilities, ensuring that you make informed decisions without the burden of managing it all on your own.
If you are starting to feel overwhelmed by your finances, it might be a good idea to talk to a financial advisor.
When is it better to do it myself rather than hire a financial advisor?
If your financial goals are fairly straightforward such as saving for an emergency fund, you may not be ready to hire a financial advisor just yet. If you reach out to a fiduciary financial advisor, they will be able to give you an honest opinion about whether you are better off doing it by yourself or hiring a financial advisor.
How much money do I need to hire a financial advisor?
There is no specific amount of money that you should have to hire a financial advisor. Some financial advisors will only work with high-net-worth individuals, but many financial advisors work with anyone.
However, it probably doesn’t make sense to hire a financial advisor if you’re living paycheck to paycheck. Before hiring a financial advisor, we generally recommend that you meet one of the following criteria.
- I am saving $1k/month or more
- I have $70k or more in my bank or brokerage account
- I make $140k or more as an individual (or $240k as a couple)
- I receive RSUs at work
- I have $200k or more in invested assets or cash
Should I self-invest or use a financial advisor?
Ultimately, the decision to hire a financial advisor or self-invest depends on your individual circumstances, preferences, and financial objectives. If you’re uncertain about the best approach for your financial journey, consider chatting with a financial advisor and finding out how they can help. Whether you choose self-investing or opt for professional guidance, the key is to align your approach with your financial goals and comfort level.
Interested in holistic financial planning with District Capital?
If you are interested in a comprehensive financial plan, book a free discovery consultation with one of our fiduciary financial advisors today.
Frequently Asked Questions
What are the signs that I may benefit from hiring a financial advisor?
You may want to consider hiring an advisor if your finances are becoming more complex, such as managing multiple accounts, planning for retirement, receiving equity compensation, or balancing taxes, investments, and estate goals. An advisor can provide structure and help avoid costly missteps.
Is self-investing a good option for beginners?
Self-investing can be a good way to learn about markets and build financial literacy, especially if your financial situation is simple. However, it requires time, discipline, and a willingness to handle market volatility without professional guidance.
Do financial advisors guarantee higher returns than self-investing?
No financial advisor can guarantee returns. Their role is to provide strategies that align with your goals, help manage risk, and encourage disciplined long-term behavior that may support better outcomes.
How do fees for financial advisors impact my decision?
Advisor fees vary—flat, hourly, or percentage-based—and can reduce your overall returns. It’s important to understand how an advisor charges and weigh whether the guidance, tax strategies, and time savings justify the cost.
Can I switch from self-investing to working with an advisor later?
Yes. Many people begin by self-investing, then decide to hire an advisor as their financial lives grow more complex. A financial advisor can review your existing portfolio and help align it with your long-term plan.
I’m in my late 30s and wondering if I actually need a financial advisor or if DIY investing apps are enough—what factors should I weigh?
If you’re in your late 30s, you’re likely juggling multiple financial priorities—saving for retirement, paying down a mortgage, managing childcare expenses, or investing for the future. At this stage, the decision between hiring a financial advisor and relying on DIY investing apps depends on several key factors:
1. Complexity of your financial situation
If your finances are becoming more complex—such as managing multiple accounts, equity compensation, or planning for early retirement—working with a fiduciary financial advisor may add significant value. Advisors can create holistic strategies that integrate investments, taxes, insurance, and long-term goals.
2. Time and emotional bandwidth
DIY investing apps make it easier than ever to manage your own portfolio. However, successful investing still requires time, discipline, and the ability to stay objective during market volatility. Many investors in their 30s begin to realize that life gets busier, and outsourcing financial decisions to a trusted advisor can save hours of research and reduce stress.
3. Cost versus value
DIY investing can save advisory fees, but that doesn’t necessarily mean higher long-term returns. Research from Vanguard suggests that working with an advisor can add up to 3% in “advisor alpha” through behavioral coaching, tax efficiency, and disciplined portfolio management. A good fiduciary planner can also help you identify strategies that you might overlook when managing investments alone.
4. Confidence and accountability
Even confident DIY investors sometimes lack an accountability partner to help them stay on track. A financial advisor can serve as that sounding board, ensuring your financial plan adapts as your life evolves.
5. Regulatory and fiduciary oversight
Working with a fiduciary, fee-only firm like District Capital means you receive advice that must legally put your best interests first. Advisors at fiduciary firms are held to higher ethical standards than many commission-based financial professionals.
If your financial life is relatively simple and you enjoy learning about investing, DIY apps can work just fine. But if you’re starting to feel time-constrained, uncertain about your strategy, or overwhelmed by competing financial goals, a fiduciary financial advisor can provide clarity, structure, and confidence—so you can focus on living your life rather than managing your portfolio.
What qualities should I look for in a financial advisor?
Seek a fiduciary financial planner who is transparent about fees, credentialed (such as CFP®), and experienced in working with people in your situation. These factors help ensure that advice is designed to put your interests first.
Alvin Carlos, CFP®, CFA is a fee-only financial planner, in Washington, D.C. He has a Master’s degree in International Relations from SAIS-Johns Hopkins. Alvin is the founder of District Capital, a financial planning firm designed to help professionals in their 30s and 40s maximize their money and retire by 55, through holistic financial planning and research-driven investing. Schedule a free discovery call today.
