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By Tanita Conradie*
Do you fix appliances around the house when they break? Do you service your own car? How about your investments? Are you also DIYing your way to retirement? There are certain things left to the experts, and planning your financial future is definitely one aspect of your life that deserves expert intervention.
The concept of paying for financial advice is relatively new in South Africa, so many are not yet aware of the advantages. Previously, commissions to advisors were used to compensate them for their services, but abuse of that system led industry authorities to clamp down and introduce an advisory fee model.
This change has resulted in your financial goals now taking preference over the product or platform that would have earned an advisor the most income. So, the focus is on your overall financial well-being not just the products you use for your retirement savings.
In case you still have doubts, here are six of the major benefits of having a suitably qualified financial advisor:
See the bigger picture
A certified and diligent financial advisor should become a trusted guide who is able to look at every aspect of your financial well-being. Retirement saving is only part of a bigger picture, and an advisor can help shape other equally important aspects of your life.
Basics like saving for your children’s education and creating an emergency fund, to more complex issues like estate planning and tax efficiency should all be part of the offering.
Build a diversified portfolio
Building protection into your portfolio through diversification is a well-established strategy. A financial advisor can guide you and give you access to a much broader range of asset classes.
All too often investors think it is good enough to simply have different investment products on different platforms. This is not always the case, diversification across different asset classes and different territories is the best way to ride out dips and spikes in the markets.
Removing emotion from the equation
One of the biggest drawbacks from doing any DIY is the sense of doubt. Am I doing this right? What happens if it is not?
This is a critical threat if you are managing your own portfolio because the fear of losing value can lead to bad decision-making. Trying to time the market is another poor investment strategy. When you have a trusted financial advisor at your side, you reduce this risk because there is a greater chance you can be persuaded to ignore the immediate noise and focus on your long-term strategy.
Being aware of the tax implications of your investment decisions is of paramount importance.
A living annuity, for instance, is liable for income tax, but not interest, dividends or capital gains tax. A unit trust, by contrast, is taxed on interest, dividends and capital gains but you do not pay income tax.
Knowing the differences can save you money, and your financial advisor is ideally placed to help you use the most appropriate instruments.
Future-proof your finances
Making and saving money are actually just the starting point of building a nest egg that can support you and your family in the future. Once squirrelled away, your biggest responsibility is to make sure your family gets the full benefit of your forward planning.
This means taking appropriate measures to ensure that your family is taken care of if you are no longer around.
A diligent financial advisor can offer the necessary planning and protection so that your beneficiaries are not left in the lurch. Risk management should also be addressed.
Avoid costly mistakes
The last thing you want when doing some DIY around the house is to be left stranded on top of a ladder in a precarious position because you did not think through all the steps involved.
You can avoid a similar situation with your retirement savings by paying a professional to come in to do the job quickly, efficiently and without placing your future at risk. I understand the need to save on costs, but you must ask yourself whether the risk of losing a significant amount of your savings is worth the few percentage-point fees you are paying for expert advice.
It takes only one mistake to set back your savings that could have been avoided if you had a sounding board and expertise to guide you.
- Tanita Conradie, CFP® professional, is a Financial Advisor at Brenthurst Pretoria [email protected]
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