Financial Feminist – 105. Ask Tori: Do I Need a Financial Advisor?

Intro

In this episode of the “Financial Feminist” podcast, Tori, a money expert, New York Times bestselling author, and millionaire, answers user-submitted questions on savings and investing. One listener asks whether they should hire a financial advisor after receiving a windfall of money. Tori provides valuable insights and recommendations on this topic.

Main Takeaways

Building an Emergency Fund

• Tori recommends having an emergency fund in place before considering a financial advisor.
• Start by building an emergency fund of 3-6 months of living expenses.
• Consider beefing up the emergency fund to 6-9 months or even a year.

Investing Strategies

• If you have an emergency fund and no credit card debt, invest the extra money in tax-advantaged retirement accounts like 401k or Roth IRA, and a brokerage account for general investing.
• For short-term goals like buying a house or starting a business, set aside some money in a high-yield savings account.

Types of Financial Advisors

• There are three types of financial advisors: fee-only, fee-based, and commission-based.
• Fee-only advisors only charge a fee and do not take commissions, while fee-based advisors charge both a fee and may take commissions.
• Commission-based advisors make money when you make money, but from the money in your portfolio.
• Fee-based advisors are required to be fiduciaries, meaning they are legally obligated to act in your best interest. Commission-based advisors may or may not be fiduciaries.

Alternatives to Traditional Financial Advisors

• Consider using RoboAdvisors, which are automated platforms like Wealthfront and Betterment that charge a small fee to invest on your behalf.
• RoboAdvisors may not teach you how to manage your own money and can be confusing.
• Financial coaches can educate you on managing your money but can’t manage your money for you or give specific investment advice.

Empowerment and Decision-Making

• It’s important to be informed and make decisions that feel right for you.
• There are many online resources and communities available for learning about personal finance.
• When seeking advice, analyze whether it’s too good to be true, if the source is credible, and if it makes you feel empowered rather than shamed.

Summary

Building an Emergency Fund

Tori emphasizes the importance of having an emergency fund before considering a financial advisor. She suggests starting with a fund that covers 3-6 months of living expenses and gradually increasing it to 6-9 months or even a year. This fund acts as a safety net for unexpected expenses and provides financial stability.

Investing Strategies

If you have an emergency fund and no credit card debt, Tori recommends investing the extra money in tax-advantaged retirement accounts like 401k or Roth IRA, as well as a brokerage account for general investing. For short-term goals such as buying a house or starting a business, setting aside funds in a high-yield savings account is advisable.

Types of Financial Advisors

Tori explains the three types of financial advisors: fee-only, fee-based, and commission-based. Fee-only advisors charge a fee and do not take commissions, providing unbiased advice. Fee-based advisors charge a fee and may also take commissions, while commission-based advisors make money from the money in your portfolio. It’s important to ensure that fee-based advisors are fiduciaries, legally obligated to act in your best interest.

Alternatives to Traditional Financial Advisors

If hiring a traditional financial advisor is not suitable, Tori suggests considering RoboAdvisors, which are automated platforms that invest on your behalf for a small fee. However, she mentions that RoboAdvisors may not provide the same level of education and personalized advice as traditional advisors. Financial coaches can offer education on managing money but cannot manage your finances or provide specific investment advice.

Empowerment and Decision-Making

Tori encourages listeners to be informed and empowered when making financial decisions. She highlights the availability of online resources and communities for learning about personal finance. When seeking advice, it’s essential to evaluate the credibility of the source and ensure it aligns with your values and goals.

Conclusion

In conclusion, Tori emphasizes the importance of building an emergency fund and considering one’s financial goals before hiring a financial advisor. While advisors can be beneficial for individuals with complex financial situations, there are alternatives such as RoboAdvisors and financial coaches. Ultimately, the decision should be based on what feels right and empowering for each individual.