Should you hire the services of a personal finance advisor?

Are we adept enough to take our personal finance decisions? The answer is both “Yes” and “No” depending on our understanding of finance and how it works to create wealth. For the inexperienced and new, securing the services of a professional personal finance advisor helps.

There is so much debate over hiring a personal advisor over social media platforms. Many argue how these advisors charge exorbitantly while others insist on their necessary participation in all investment decisions. While all investors want to create wealth, a lot depends on their financial goals and risk appetite. However, what matters is their perseverance and their ability to assess the market. The latter is not possible without the necessary guidance, which is possible only with the expertise and experience of personal financial advisors. Even the best finance specialists seek tips and recommendations from advisors before putting their money into investments.

You may call personal finance advisors by whatever name you want. This is because they not only assist you with investment decisions; they are also for managing your emotions, dealing with market cycles, and assisting you in selecting the right fund. According to the Association of Mutual Funds in India (AMFI) research, lone investors are more likely to churn their portfolios than investors who are guided by a financial strategist.

Understand why having a financial guide/advisor is a necessity rather than a luxury.

Diversity of performance

You may choose funds according to their capitalization or their investment portfolios, but this does not guarantee similar performance. The performance of equity funds within the same or different categories varies greatly. This implies that blindly parking money into funds based on returns or their market cap will do more harm than good. A professional advisor will assess numerous variables before advising you on the right choice of funds.

Prior performance

Choosing the best funds in retrospect hasn’t helped. Picking funds based on one-year and three-years historical performance is not enough. Many people make the mistake of not looking beyond the returns and expense ratio. Quarterly poor performance has caused many people to liquidate their investments. Financial advisors ensure hand-holding when their clients are nervous. They steer them in the right direction by explaining to them facts more relevant for decisions regarding mutual fund purchases.

Be firm with your investment decisions

Divide your investments into three categories: growth/quality MFs, sector rotation MFs, and economy-facing/dominant mutual funds. You can change the allocation among these three categories depending on the market scenario, so you may end up with a higher large-cap allocation or a higher mid and small-cap allocation - so be dynamic in nature. Keep 70-80 per cent in a strategic portfolio and the rest in a tactical portfolio to capitalise on any opportunities that arise in between.

Never take investment advice from family members, friends, or social influencers. Identify your own risk profile, invest in a combination of equity and debt-based risk profile output, and stick with it until your investment horizon or goals are met, but remember to review the portfolio every six months or a year.

Personal finance advisors are actually the doctors of wealth creation, thus, aiding many new investors to manage market cycles and hold their nerves during market upturns.