Motley Fool Hidden Gems Investing - When to Hire an Advisor, and It Pays to Hug Your Job

Starting point is 00:00:00 Does it still pay to switch jobs? And why you should hire a financial planner, even if you're usually a do-it-yourselfer? You're listening to the Saturday Personal Finance Edition of Motley Fool Money. I'm Robert Brokamp, and this week I speak with bank rates Dayana Yochum about five reasons why you may want to get some professional help and where to get it. But first, let's kick things off with last week in money. You know, we've seen a lot of shifts in the job market since the pandemic. The unemployment rate rose 14.8% by April of 2020, but it was down to 3.4% within a couple of years, and it currently sits at 4.2%. Pandemic panic was followed by the great resignation. Across 2021 and 2022, the U.S.

Starting point is 00:00:48 Bureau of Labor Statistics recorded almost 100 million instances of a person switching jobs or leaving the workforce. After all, leaving one job for another was the best way to boost your income. By December of 2022, people who stayed with their employers got raises of 5.5% on average, whereas job switchers saw their incomes increase by 7.7%. And over the past three decades or so, it has usually been the case that job hoppers get rewarded with higher salaries, but not so much nowadays. CNBC reports that the annual wage growth for job stayers is actually now slightly higher than growth for job switchers, according to data from the Federal Reserve Bank of Atlanta. So far this century, there have been just two other times when this has happened.

Starting point is 00:01:31 In early 2004, when the economy was still recovering from the dot-com crash and the September 11th attacks, and at the tail end of the 2007 to 2009 Great Recession. So it could be considered a sign of job market distress, though not necessarily of worse times to come. That said, the Labor Department announced on Wednesday that the number of unemployed Americans exceeds the number of job openings for the first time since 2021. It seems now maybe a better time to be a job hugger than a job hopper. Moving on to our next item, you know, stocks have been around for centuries and traditional open day mutual funds have been around for a bit more than a century. Exchange traded funds haven't been around nearly as long, a little over 30 years.

Starting point is 00:02:13 Yet according to a recent Bloomberg article, the number of ETFs now exceeds the number of publicly traded stocks in America for the first time ever. The article cites data from Morningstar, which says that there are now more than 4,300 ETFs, whereas the number of stocks is around 4,200. So far this year, an average of four new ETFs have been launched each day, which is a record-setting pace. ETFs used to be mostly just index funds that traded like stocks, but more and more actively managed ETFs are hitting the market. According to ETFDB.com, there are more than 250 ETFs that allow you to bet on whether a single stock will go up or down, often using leverager options to magnify the returns. Heck, there are now nearly 70 ETFs that invest in Bitcoin, about a third of

Starting point is 00:02:57 which have been launched this year, according to the Bloomberg article. So is this good news or bad news? I would like to say more of the former. After all, who can argue with more choices? And the number of traditional mutual funds has been higher than the number of stocks for decades. In the words of market pundit Sam Rowe, this is essentially the same as saying there are now more recipes than there are ingredients. In other words, variety is the spice of life. But I do worry about whether the exploding number of choices will confuse and overwhelm some investors, especially those who are newer to investing. For most, it's likely best to stick with ETFs that pursue their original purpose, a lower cost and more tax efficient way to be an index investor.

Starting point is 00:03:37 And unless you really, really know what you're doing, stay away from the leveraged and single stock ETFs. And now we come to the number of the week, which is $19,000. That's how much cheaper the average new home is than the average existing home, according to an article published on realtor.com. And if you thought that new homes usually cost more than existing homes, you're right. According to the article, since 1999, new home sales prices have dipped below existing homes in only 10 months, eight of which were in the past 15 months. Plus that $19,000 figure likely understates the difference since many home builders are offering cash at closing and lower mortgage rates to entice buyers. So what's going on? Well, it could be another sign that the

Starting point is 00:04:21 housing market is weakening. In addition to lower sales numbers and increasing inventory and some sales price dips that we have seen this summer, home builders may be sort of more motivated to get ahead of the trend and offer discounts to unload inventory, whereas homeowners looking to sell are less inclined to lower prices. Lower prices would certainly be welcome to those who are looking to buy a home but find themselves priced out of the market. To quote Charlie Bilello of Creative Planning, the median American household now needs to spend 48% of their income to buy the median priced home, worse than the peak of the 2006 bubble. Up next, the times when hiring financial help makes sense, when Motley Fool Money continues.

Starting point is 00:05:01 I don't personally know you, dear listener, but I bet you're not the type of person to let someone else be 100% in charge of your finances. I'm guessing this because you're actually taking the time to listen to this podcast, so I bet you are partially or fully a do-it-yourselfer when it comes to your money. And it's understandable. No one cares more about your money than you do. However, there are times when getting professional help can be one of the best investments you'll make. And here to talk about some of those times is my former Motley Fool colleague and former podcast co-host, Dayana Yochum, who is now a columnist for Bankrate. Dayana, welcome back. Well, thank you, Robert. Great to be here. Well, you recently wrote an excellent article about when

Starting point is 00:05:41 to consider getting a financial advisor. So let's discuss five potential scenarios, starting with number one, you're navigating a financial turning point. Yeah. When I am thinking about when help comes in particularly handy outside help that is i'm thinking high impact high dollar high stress financial decisions and what's more high impact high stress high dollar than life changes so um different life events marriage divorce job changes inheritances all of that stuff so an advisor speaking with an advisor can help you sort of evaluate the potential impact any of those events might have on your finances they can recommend adjustments you might need to make and they also can help model these what-if scenarios so you can see how things might play out and there are

Starting point is 00:06:36 experts in the field who are very issue specific advisors so like a divorce financial advisor so they can get into the real nitty-gritty of this stuff but it's it can be really valuable to have someone by your side helping you navigate life events as they occur. Yeah, because they can affect basically almost every aspect of your personal finances, right? Your income, your budget, your benefits, taxes, portfolio, insurance, estate planning, retirement planning, the whole kit and caboodle, right? And it can be worthwhile to get professional help to understand and really maximize all the moving parts. Yeah, and also just to really to bring up to maybe reveal some of blind spots you might have. And this is a situation that when you look for a financial

Starting point is 00:07:22 professional, you're probably looking for someone who will charge by the hour or by the project, unless you want them to sort of handle the whole kit and caboodle. In that case, you might want to look for someone who also manages your money. And we'll talk about that later. But it's important when you think about this to be very clear what you're looking for and then find the financial planner who will do that to the extent you need it. And for many cases, you can pay someone for an hour or two just to analyze, hey, I'm getting this inheritance. What should I do with it? Or I'm not sure what to do about long-term care insurance, or I just need help with planning to save for college. Can you help me? And that's the type of planner you want

Starting point is 00:07:59 to get for that. That's great advice. You don't have to hand over all of the financial decisions and managing your money just to deal with an inheritance, say. Excellent. All right, let's move on to scenario number two. Financial stress is affecting your mental health and relationships. Well, who doesn't occasionally stress out about money? Actually, it's interesting. Bankrate did a money and mental health survey and found that years in a row, money worries are the number one factor affecting mental health. And over 40% of Americans said that money worries kept them up at night.

Starting point is 00:08:37 Oftentimes, it's this feeling of overwhelm people have when they have a pileup of competing priorities, vying for their money. And here's where talking with a financial advisor, they can help you organize your finances and also prioritize when you're saving for multiple goals at one time or have a certain, you know, debts that you're trying to pay down. That alone can be worth the price of admission, just the sort of relief you can feel just getting a handle on this stuff. But also another important thing here is if money is affecting your relationships, an advisor is a great neutral third party. They can keep the conversation civil and productive and also help you walk away with some concrete feedback and advice. Yeah, you're getting that objective opinion.

Starting point is 00:09:30 So hopefully they will help you navigate that. But they're actually even mental health professionals are good with that. There is a profession called financial therapist. That's someone who has taken the extra work to understand basically the emotional and psychological aspects of financial decisions. So it's a whole other type of financial professional to consider, especially maybe if you have significant habits you need to break, significant anxiety, or again, maybe as a couple, you're having trouble navigating the financial decisions that you have to make. Yeah. And also, you know, if you scheduled meetings or check ins, that keeps the momentum going. like after that first meeting, you're all jazzed. I'm like, I'm going to, I'm going to get on top of this. But the advisor can be your accountability buddy. That's like, oh no, I'm meeting with them,

Starting point is 00:10:15 you know, in three days, I better do that thing I said I was going to do. Exactly. All right. Let's get to scenario number three. You're feeling panicky or unsure about your investment strategy. You're not meeting with an advisor and expecting them to predict the future of the market. And honestly, if someone says they know exactly what's going to happen, you run out the door immediately. But they can offer some perspective. They can be a voice of calm when everyone's freaking out. And here, too, you don't have to hand them your money to manage. Sometimes just a check-in will talk you off the ledge and keep you from doing something rash that really handicaps your portfolio's future growth.

Starting point is 00:11:00 I used to be a financial advisor and I know many financial advisors over, I've met many over my time here at The Motley Fool. And I could tell you that they say one of the biggest benefits they provide is talking people off the ledge, bringing sort of a certain amount of calmness when markets are not necessarily calm. And as you point out, you don't necessarily have to hand over all your money. You could just get that second opinion about how you're managing your portfolio. That said, if you want someone to manage your money, you won't have a problem. In fact, the majority of financial advisors get paid by managing your assets. The average fee is around 1% or so.

Starting point is 00:11:39 And then the financial planning comes alongside that. And there are also less expensive options out there like robo-advisors that do the managing of the portfolio automatically. So if you are a hands-off investor, this is just happening behind the scenes. And, you know, hopefully you're not checking your balances all the time, but know that a very smart algorithm is taking care of any adjustments that need to be made to keep you on track. Absolutely. All right. Let's move on to scenario number four. When retirement is on the horizon, there are a lot of moving parts and there are a lot of questions that you have to answer that all affect other decisions that you're going to make. So things like, how much can I safely spend each year and not run out of money? Which account should I withdraw from and in what order?

Starting point is 00:12:33 How can I minimize taxes before or during retirement? When should I file for Social Security? When should my spouse file for Social Security? So these experts, again, live and breathe these, you know, the minutiae of these topics can really help you navigate through these decisions as they come up, before they come up, and really make that on-ramp a lot smoother for you. I've been a certified financial planner for well over 15 years. I have a master's in personal financial planning. but my wife and I are going to, you're very fancy, but also when my wife and I get ready to retire, we are going to hire a fee only financial planner to give us the objective second opinion,

Starting point is 00:13:21 because there are so many moving parts. So many of the decisions, uh, if, if not permanently irreversible, it's very difficult to reverse them. Um, plus financial planners have high powered professional software that is not available to the average person that you put all that together. And I think it'll be worthwhile. It will cost some money if you're paying by the hour, it's generally 200 to $400 an hour. If you're talking about a complete financial plan, you're talking two to $4,000, but I think for many people, the investment will be worth it. Oh, absolutely. And it's, and it's funny you say that about, um, you know, you have all the skills You've looked at this a gazillion hours, but almost all of the financial advisors I've talked to for my work have all said the same thing, that they meet, they themselves consult other financial advisors when it comes to these complex decisions.

Starting point is 00:14:15 And again, it's just like a second opinion. You go to a doctor and say, hey, is there something that I've missed? Is there something new I need to know about? Something old that's going to come up and bite me? All right, let's move to our fifth and final reason. You want to make sure your loved ones are supported when you're gone. This is the bummer, no fun stuff. But doing it, estate planning.

Starting point is 00:14:43 we're talking about wills and making sure your account beneficiaries are up to date, setting up trusts, all of that stuff. Doing it, doing it right is really going to secure your place as the favorite relative among all of your heirs. Absolutely. And every certified financial planner has training at estate planning. It's actually one of the core competencies or subject matters that they're tested on. But it does also involve seeing a qualified estate planning attorney. And one of the good things about seeing a financial advisor is they probably could point you to a good attorney. And then the other point I think is important to make is that you may feel fine doing everything on your own, but if you're married, what will happen if you pass away or

Starting point is 00:15:28 something happens to you? You want to begin the relationship with a financial planner beforehand so that if something happens to you, your surviving spouse or surviving family has a relationship with a financial planner who can make sure that everything keeps running smoothly, even though you've passed on. All right, let's say someone has decided, yes, we have convinced them that they should probably get some financial help. Where should someone start to look for an advisor or a planner or an estate planning attorney who could be a good fit? If you're looking for someone, plug alert, advisorsmatch.bankrate.com. This is a great tool where you'll be matched with an independent fiduciary fee-only financial advisor, and you can

Starting point is 00:16:15 search the database by expertise. Say you're looking just for estate or tax planning or cash flow planning, or there are advisors who work primarily with retirees or focus on young high earners, or even an advisor who's well-versed in employee stock options. So you can search for an advisor based on their expertise. You can search by location if in-person meetings are your preferences. But a lot of advisors these days, many offer virtual services through Zoom or email or over the phone. And also there's the pricing, flat fee retainer, one-time meeting, assets under management. Let me define a couple of terms you use there. One is fiduciary. That means the person is legally obligated to put your interest first. You'd think that would apply to

Starting point is 00:17:03 all people who call themselves financial advisors, but it doesn't. So you definitely want to keep an eye out for a fiduciary fee only means that you are paying them for their time or maybe their asset management skills. You're not paying by a commission, which could introduce a conflict of interest with a commission. Now, frankly, everyone has some sort of conflict of interest, but generally fee only folks have fewer conflicts of interest. And I do want to highlight to a few other places where you can get just what Dayana described. One is the Garrett Planning Network, that's G-A-R-R-E-T-T, started by Cheryl Garrett, one of my personal heroes. NAPFA, the National Association of Personal Financial Advisors, and the XY Financial Planning Network. So all of those

Starting point is 00:17:47 are ways to find an advisor that will be fee-only and that you can choose from managing assets or pay by the hour or by the project. Time to get it done, fools. And this week's call to action is in honor of National 401k Day, which was this past Friday, because it's always on the Friday after Labor Day, at least since 1996. So here's some tips for making the most of your 401k or 403b or TSP or whatever retirement account you have at work. First off, check your savings rate, including the employer match. These days, most experts recommend that you should be saving 15% of your household income for retirement. And of course, make sure you're at least contributing in enough to get the full match, approximately one in four workers is not. Evaluate your

Starting point is 00:18:30 investments. If you've been investing in an actively managed mutual fund and it has underperformed an index fund that invests in the same asset class, then the index fund may be the better choice. Consider whether some or all of your contributions should go into a Roth account if your plan offers the Roth as an option. You'll be giving up a tax break today in exchange for tax-free withdrawals in retirement. And unlike with a Roth IRA, there are no income restrictions on contributing to a Roth 401k. Anyone can contribute. Log in and poke around your 401k's website. You may find features, tools, maybe educational materials that you didn't know were available to you. And while you're there, review and update the beneficiary designations for your account. These are the

Starting point is 00:19:11 people who will inherit the money if you pass away. And it's almost always better for your heirs if you leave your account to a specifically named human or humans rather than it just going to your estate. Finally, evaluate the overall plan. If your 401k has high costs, subpar investments, maybe lacking certain features like the Roth option, or maybe even a side brokerage account, advocate for improvements or even a new plan. The truth is the Motley Fool 401k wasn't really all that good when I joined back in 1999, but a group of us got together, formed a committee, successfully lobbied the foolish powers that be and now our plan is pretty darn good there's no harm in asking your boss for more features or a better plan and if you're successful your future

Starting point is 00:19:52 retired self and those of your colleagues will thank you and that's the show as always people on the program may have interests in the investments they talk about and the motley fool may have formal recommendations for or against so don't buy or sell investments based solely on what you hear all personal finance content follows motley fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure,

Starting point is 00:20:19 please check out our show notes. I'm Robert Brokamp. Fool on, everybody.

Motley Fool Hidden Gems Investing - When to Hire an Advisor, and It Pays to Hug Your Job

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