- Professional investment management can help you navigate the markets.Medioimages/Photodisc/Photodisc/Getty Images
If you have -- or are starting -- an investment portfolio and are experiencing anxiety at the prospect of selecting the appropriate stocks, bonds or mutual funds for your objectives, you might want to retain an investment adviser. However, before making your selection, be sure to interview several to find one with whom you're comfortable. Be aware also that investment advisers are required by law to be licensed and registered, so make sure to conduct a credentials check before entrusting your hard-earned money to anyone. - As an investor, your No. 1 objective is to maximize the return on your investment dollars -- a goal that can be easier said than done if you do not have proper knowledge of the securities markets. Advisers' enhanced levels of expertise can help you avoid potentially costly mistakes made by many self-directed investors, especially the propensity to invest on emotion rather than logic and therefore overreact to temporary market conditions -- a move that can sabotage your overall investment returns, as a market-timing analysis conducted by Fidelity Investments confirms.
- A number of factors can affect the securities markets, including both macroeconomic and microeconomic conditions, as well as investor sentiment. To succeed at investing, you need an understanding of the characteristics and risks of the securities markets and an awareness of -- but not overreliance on -- their historical performance, along with the ability to identify the various forces in play at any given time. You must also be able to apply all of that information to your specific investment objectives -- a competency the typical self-directed investor lacks. Investment advisers are required by law to successfully complete an initial course of study, along with continuing education, that encompass not only investment-specific concepts like securities trading and portfolio management, but also basic economic, finance and business principles, as well as the laws and regulations that govern the securities markets. Experienced advisers can serve as an information guide that can help you translate prevailing and expected market conditions, while helping you navigate toward your particular investment goals.
- An adviser's primary role is to develop and manage an investment portfolio in accordance with your investor profile, the components of which might include your current and desired financial position, any previous investment experience you have had -- as well as those outcomes -- and your risk tolerance, or, in other words, your degree of comfort with any potential volatility or loss of market value in your investment portfolio. Most advisers also will provide ongoing management, making future portfolio adjustments -- for example, reallocating or rebalancing assets -- as needed, to compensate for varying market returns and other conditions. This is not to say that if you use an investment adviser you will never again need to think about your portfolio -- you should still periodically monitor its performance -- but knowing that an experienced professional has taken into account your stated needs, objectives and characteristics can go a long way toward relieving much of the anxiety you might feel if you were to attempt to self-direct your investments.
- Although people sometimes erroneously use the terms financial planner and investment adviser interchangeably, the two professions differ. Financial planners typically provide guidance on your finances overall, often encompassing not only your investments, but also your retirement and estate plans, taxes and insurance coverage. Investment advisers do just that: render advice on your investment portfolio.
