The same is true for investors who are enrolled in Vanguard Personal Advisor Services®. Working with an advisor may help you achieve better returns than you’d achieve by managing your investments on your own. Here’s why.
Goals, goals, goals
You probably don’t invest just to get a return on your money. You invest so you can afford to purchase a home, pay for college, see a doctor (to confirm your WebMD self-diagnosis), and eventually retire. Your goals are what drive you to invest, and they drive your investment strategy too.
As a Vanguard Personal Advisor client, you receive:
- Complete portfolio management, including an investment plan that’s tailored to your goals.
- Tax-conscious financial planning that factors in asset location and spending strategies so you can hold onto as much of your investment return as possible.
- Continuous support from a financial planner so you can stay on track—despite whatever obstacles life presents.
Here’s an example of how working with an advisor helps you every step of the way, from starting to save for retirement to living in retirement.
It starts with a plan
When you initially met with an advisor, you zeroed in on your most important short- and long-term goals. You also may have identified some potential roadblocks, such as inconsistent income and debt, which could prevent you from saving as much as possible.
With your goals and potential roadblocks in mind, an advisor built your portfolio from the top down, starting with your asset allocation (the mix of stocks, bonds, and cash in your portfolio) and then choosing individual investments.
Thanks to an advisor’s guidance, you have a plan you can stick to. And for the first time, you feel confident that you can afford your daily living expenses, save for retirement, pay down debt, and even set money aside for a home.
Just half of self-directed investors have a formal retirement income plan compared with almost two-thirds of those who have an advisor.
Source: Cerulli Associates. The Cerulli Report―U.S. Retail Investor Advice Relationships 2016: Embracing the Robo.
Think long term
An advisor monitors and rebalances your portfolio when necessary. And, as your personal circumstances change, an advisor adjusts your asset allocation and helps you focus on new priorities. For example, in several years you may need help figuring out when you can retire or how much you’ll be able to spend in retirement. Or you may need help finding the most tax-efficient way to replace your paycheck. Either way, an advisor has you covered.
An advisor helps minimize your tax burden in 2 ways: by efficiently allocating assets between taxable and tax-advantaged accounts and by developing a tax-smart distribution plan for withdrawing money in retirement.
Investor beware (of yourself)
Doctors can’t treat members of their own family because their emotional attachment may cloud their judgment. They’d put themselves at risk of making medical decisions emotionally instead of rationally.
To a lesser degree, the same is true for your investments. Your money is yours. You own it, and you’re in charge of what happens to it. Money affords you the opportunity to support yourself today, and with some planning, it can help you live comfortably in the future. Because money represents freedom, choice, security, and more, it’s hard to keep emotion out of investing.
An advisor acts as an emotional circuit breaker by redirecting you when you have the impulse to chase returns or run for cover in volatile markets.
Research has shown that investors often derail their investment success by trying to time the market and chase performance.
The temptation to chase returns or protect principal (the money you originally invest) can overwhelm even the most disciplined investors. Forget beating the market; historical data shows that investors may not even get the same returns as the funds they invest in. On average, between December 31, 2005, and December 31, 2015, investors earned 0.86% to 2.29% less than the funds they invested in.* Why? They were likely buying or selling for the wrong reasons—such as buying a fund because it was performing well or selling a fund because it was performing poorly—which can hurt their personal performance.
Focus on what you can control
Nobody has control over what happens in the future, but you can control your long-term plan and whether or not you stick with it through thick and thin. Even if you start out with a perfectly diversified portfolio, your asset allocation won’t withstand the test of time if you make rash decisions in response to current market conditions.
An advisor creates a plan to help you reach your goals, but the real value of working with an advisor is having ongoing support from a professional who’s an investor, just like you. Your relationship can help you navigate through potential roadblocks and stay the course.
*Source: Morningstar, Inc.
All investing is subject to risk, including the possible loss of the money you invest.
Diversification does not ensure a profit or protect against a loss.
Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.