Let’s face it, you can certainly hire a financial advisor to help you choose your investments, but most of them sell high-priced investments on commission or charge incredibly high fees for managing your assets. If you’d like to avoid those charges and fees, below are some of the pros and cons of 4 types of investments and/or advisors so that you can make the choice yourself. Enjoy.
#1: Asset Allocation Funds
These are designed to be a type of “one-stop shop” where you can get everything from bonds and stocks to alternative investments like commodities and real estate.
The Pros: It’s easy because you simply need to pick one, set it up and then forget about it. You can choose between balanced funds, tactical funds and target date funds, all of which have slightly different investments, and different proportions of those investments.
The Cons: With an asset allocation fund, the mix of investments you get won’t be specifically tailored to your needs. The fees might also be higher since they are composed of actively managed funds rather than passively managed. Lastly, since all of the investment types, regardless of their tax efficiency, are included in an asset allocation fund, there’s no way to minimize taxes across both taxable and tax-sheltered accounts.
If you want an online program that will give you both specific and customized recommendations about investments, and manage your portfolio as well, a robo-advisor may be your best choice.
The Pros: There are a number of different Robo-Advisors available both for retirement plans and outside accounts, and they offer recommendations based on a number of factors like taxes, investments in your employer retirement account and so forth. In the very near future Charles Schwab will be introducing a new, free, robo-advisor her called Schwab Intelligent Portfolios.
The Cons: With most robo-advisors you’re going to pay a fee for the service, and also be limited by the investment options that are included in whatever program you choose. Also, it takes quite a bit of time to enter all of your information into the program at the beginning.
#3: Discount Brokerage Firms
The Pros: Ff you want to talk to someone local that can help you choose your investments, a discount brokerage firm like Fidelity, Scotttrade and Charles Schwab is a great choice.
The Cons: The help that these discount brokerage firms can give you is quite limited unless you pay an extra fee. Also, the advice and help you get can vary drastically from one representative to another.
#4: Fee Only Advisors
The Pros: If you want to avoid high asset management fees, as well as conflicts of interest, hiring a fee-only advisor is a good idea, one who charges either an annual retainer or hourly fee. They can provide a comprehensive financial plan as well as excellent investment advice and, in some cases, tax preparation services also.
The Cons: Usually, fee-only advisers are the most expensive option for handling your investments.
No matter what choice you make, what you need to focus on is that your portfolio is well diversified based on both your time-frame and your risk tolerance. You also want to keep costs under control, including taxes, fees and trading costs.