Archives for March 2022

A common refrain in the realm of DIY personal finance is that by the time you know enough about investing to be able to pick the right type of advisor, you likely don’t need an advisor.

If we’re only talking about investing, I think that’s true. The more you learn about investing, the more you realize that a very simple approach (i.e., a portfolio with a few low-cost index funds or ETFs) is quite possibly the best approach. Or, if it isn’t the best approach, it’s at least close.

And no, you probably don’t need professional help to manage a simple index fund portfolio, especially if you’re still in your “accumulation” stage. (Though even then, a person might still choose to delegate such responsibilities.)

The financial planning industry grew out of the stock brokerage industry, so many people still think of financial planners as “people who give investment advice.” But investing is only one piece of personal financial planning. And, frankly, it’s the easiest piece.

Insurance planning can be complicated. With life insurance, simpler is generally better. But there’s plenty of complexity involved with choosing a health or disability policy. And if you already own a deferred variable annuity and you’re trying to figure out what to do with it, there’s nothing simple about that decision. Professional assistance may be valuable.

And then you’ve got tax planning. I’ve worked in the tax field for ~15 years, and I’m still regularly learning about a new tax law, learning about some state tax law that I haven’t had to know about before, re-learning about an existing law that I haven’t had to deal with recently, or learning about the interaction of two pieces of tax law.* It’s complicated. And the more I learn, the more I realize the depth and breadth of what I still don’t know.

Estate planning is similar. For some people, it’s not so bad — get your basic documents in order, and you’re all set. For other people (e.g., combined families, or people trying to provide for a disabled loved one after their own death) it can get complicated in a hurry. Guidance from an experienced estate planning attorney (e.g., Bruce Steiner) or a financial planner who deals with estate-related topics (e.g., Elliott Appel) could provide a better financial outcome as well as considerable peace of mind.

With regard to student loans, the rules for public service loan forgiveness can be bewildering. If that’s a path that could be available for you, advice from somebody like Ryan Frailich who deeply knows those rules could be extremely valuable.

Running a simple portfolio is indeed simple. But financial planning involves a lot more than just running a portfolio. In fact, it involves so much more that there’s no way for one person to be an expert in all of it — even if it’s their full-time job and they have decades of experience. If/when one of those more complicated situations becomes relevant to your household, requesting professional assistance isn’t some sort of failure. It’s a prudent decision, to minimize the likelihood of a mistake undoing the smart decisions you’ve already made.

*Among tax professionals, the words “quick question” (or “simple return”) are self-contained jokes/punchlines. Almost everybody thinks they have a quick question. What makes things complicated isn’t so much any one particular provision in the law (unless it’s the QBI deduction). What makes things complicated is the interactions between multiple provisions. There are many tax topics/situations that are individually very common (e.g., dealing with a particular deduction or credit, the sale of a home, sale of a business, the way long-term capital gains and qualified dividends are taxed, etc.). But each household has a handful of different things from that menu that happen to be applicable to them. And the possible combinations are endless. So even if a tax professional has worked with each of these individual topics many times, this may well be the first time he or she has dealt with this specific combination and the ramifications thereof.