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The high cost of doing it yourself

March 13, 2019

I was watching a segment of Mad Money on CNBC with Jim Cramer the other day and it reminded me there are a lot of retail investors who do not work with a professional advisor. While you may not need an advisor to do everything for you, there are many ways an advisor can add value to your financial strategy and financial well being.

Two reasons to consider an advisor are:

The value of an outside perspective
The value of time
Our lives are constantly changing and the market place for financial tools is constantly changing. With limited amounts of time it is important to have access to timely, information and/or advice from which to plan and make plans. Additionally it is important to know your limits, priorities and options.

If you read one of Jim’s self-help investment books or watch his show, he has a few cornerstones of investing I think are very valid:

You need be diversified and understand diversification.
You need to spend approximately one hour per position per week keeping up with your investments if you plan on managing them yourself.
If you don’t have the time or interest you should hire a professional to manage your money for you.
You need an emergency fund and disability insurance to protect your ability to save and invest for the long run.
I find all four cornerstones great pieces of financial advice. However, have you thought about or calculated how much it would cost you to invest without professional guidance? Additionally do you know how to best spend an hour per week keeping up with each investment position you own?

Let’s do some math and think about how much time and money Jim is asking you to spend. If you work 50 hours per week, 50 weeks per year and make $75,000 per year you earn around $30 per hour. (Excluding including benefits / 2 weeks’ vacation, taxes, etc.)

If you have 5 positions in a diversified portfolio, you need to spend 5 hours per week keeping up with your investments. If we give ourselves 4 weeks of vacation from investment research per year, that brings your total time to 48 weeks x 5 hours per week = 240 hours per year.

Wow, 240 hours or the equivalent of 10 days per year just keeping up with your investments? If you could spend that time working at $30 per hour you would earn an extra $7,200 per year before taxes. It is import to remember the opportunity cost of time of your time.

If you are making more than $75,000 per year, the opportunity cost per year increases. You can get a lot of professional help for $7,200 per year. If you have total investable assets less than $500,000 it is likely you can get a comprehensive financial plan for a fraction of that cost. (For comparison I offer an entry level financial planning subscription for $100 per month)

Even if we overestimated by 50% in the above example, the opportunity cost is still as high as $3,600 per year. Authors Note: Everyone’s situation is different. If you enjoy handling all of your investments on your own and have the time, feel free please do so. If you don’t, I offer investment advice, portfolios and options for a reasonable cost that is easy to understand and transparent. What would you do with another 8-10 days of time per year?

Most of us using the round numbers above should think twice before going it alone on the advice of a TV Guru. (No offense Jim, just reminding people about one of your principles.) Accessing financial advisors, planners, accountants and estate attorneys can save you time and money. Additionally you could be missing out on a large amount of advice in other areas of finance outside of your investments that can potentially save you money or otherwise add value to your long term financial strategy.

If you are looking to learn more about the financial planning process, investment policy statements, or how you can receive professional financial advice, education or courses of action to accomplish your financial goals, please reach out to me by phone or email to setup a time we can meet in person or a virtual meeting.

Kit lives in Chicago and enjoys helping professionals, business owners and their families achieve their personal and financial goals. He provides financial planning, investing and insurance advice and solutions in person or remotely by secure video conference.

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