Five Ways Your Advisor Should Add Value to Your Portfolio

A recent study revealed that 75% of the adult population in the U.S. manages their own finances without any advice from professional services or advisors — and just 17% said they have a financial advisor.

A study from Pew Research Center recently showed that 62% of non-retired adults have experienced wage or job loss since the start of the COVID-19 pandemic. Over half of the respondents believe the economic impact of the pandemic will make it harder for them to achieve their long-term financial goals. As Americans are thinking about their future beyond COVID-19, many are considering financial advising to help them figure out their next steps.

Financial Advising During COVID-19

A recent study from the Financial Industry Regulatory Authority (FINRA) and the Global Financial Literacy Excellence Center (GFLEC) shows that even before the COVID-19 pandemic, over half of all American households felt anxiety and stress about their current financial situations. The pandemic itself has had adverse short- and long-term financial effects for people across the country. In current economic times, it’s more important than ever to develop a plan for your finances.

People with financial planners report that they felt more prepared than people who didn’t. According to the American Institute of Certified Public Accountants (AICPA),  70% of Americans who worked with a financial planner before 2020 didn’t require changes to their plans due to the pandemic’s economic impact. Wealth advisors helped their clients navigate economic troubles and market volatility with success throughout the last year.

The pandemic has also transformed the way financial advising works. The industry saw an increase in internet activity, investing in social media profiles and establishing relationships online. The growth of online-based financial advising makes connecting with a financial advisor easier than ever.

Benefits of a Financial Advisor

Even though many Americans don’t know exactly what a financial planner does, a survey conducted by the CERTIFIED FINANCIAL PLANNERS™ Board revealed that an increasing number of consumers are turning to financial professionals for help. Almost 70% of adults working with a financial planner feel prepared for a recession compared to less than 40% of adults who aren’t working with an advisor.

Perhaps it’s because of the continued uncertainty in the markets, or maybe it is because a growing number of people are concerned about their retirement as the nation faces a retirement income shortage estimated to have a value of several trillion dollars. Whatever the exact reason, an increasing number of people are recognizing that using a qualified financial advisor to help them manage their money has the potential to yield tangible benefits such as increased wealth, a reduction in debt and income protection.

People with solid financial plans save more money for their retirement and other goals than people without plans are able to accumulate. A financial planner helps you organize your assets, make decisions about where to invest your money and successfully face difficult and unexpected economic conditions that arise. You’ll feel more in control of your money and ready for any challenge.

How Do Advisors Add Value to Your Portfolio?

While the statistics clearly indicate that working with a financial advisor can be beneficial in both the short- and long-terms, they do not explain the ways your financial advisor adds value to your portfolio. To understand how a financial advisor can successfully add value to your portfolio, you have to have an understanding of what it is advisors actually do.

In general, a qualified financial advisor adds value to your portfolio and, as a result, your life, by addressing complex tax issues, advising you about your investment choices and supporting you through emotional times that may negatively influence your financial decisions or circumstances. A financial advisor will help you accomplish your retirement goals and achieve all of the other interim financial goals you want to accomplish between now and the time you leave the workforce.

Your financial planner will labor to increase the amount of your wealth and help you feel confident about your current and future financial situation. Your financial advisor will also protect your wealth by making sure you have the right insurance coverage for you, your family and your assets.

A common belief that financial planners only work with wealthy individuals prevents too many people from seeking help with their finances. While some financial advisors do focus their practices on the wealthy and require their clients to have a minimum amount of money to invest, many other financial professionals will work with young professionals or specific groups of people such as veterans or the parents of disabled children.

Five Ways Your Advisor Should Add Value to Your Portfolio

Have you recently asked yourself, “Is my advisor adding value to my portfolio?” If you have, you might only be familiar with the general things your advisor does to increase your wealth, rather than the specific things he or she does for your benefit. Typically, a financial planner will add value to your portfolio by focusing on the following five specific areas:

1. Strategic Asset Allocation

The COVID-19 pandemic has changed the way people handle their finances and investments. A Planning and Progress study reports that 58% of U.S. adults are in financial recovery mode. While the majority of respondents feel confident that they’ll achieve a full economic comeback, Americans are facing setbacks and adopting new behaviors.

According to the survey, 83% of people either created, adjusted or revisited their financial plan due to the pandemic. Common behaviors include reducing spending or living costs, paying down debts and routinely revisiting their existing financial plans. Just over 30% say they’ve increased their investing behaviors during the pandemic and plan to continue this strategy over the long term.

As an increasing number of Americans turn to investing and financial advising to navigate the pandemic’s economic challenges and beyond, people are considering financial risk and their goals. Whether you prefer low-risk, stable savings or want to take calculated risks for a higher rate of return, do you know what percent of your assets should be in stocks and bonds? If you’re unfamiliar with how to invest in stocks and bonds or you haven’t consulted with a financial advisor to determine your risk tolerance, now is the time.

With a financial advisor, you can discuss your unique financial situation and find the right investment options for you. If you don’t have market experience, a planner can get you started on the right foot. An advisor will ask the right questions and help determine your unique risk tolerance level. Based on several factors like your risk tolerance and your preferred timeline, your financial planner can identify the right percentage of stock and bond investments for you.

Even if you have past experience with managing your stocks and bonds, it may have been quite some time since you last reviewed what percentage of your portfolio is in bonds versus stocks. A professional financial advisor can help you use strategic asset allocation to your advantage. They can review your current investment objectives, discuss your original financial goals and create or revise a plan to improve your portfolio and asset allocation.

Strategic asset allocation focuses on your objectives and reaching the goals most beneficial to your financial situation. Working with a financial advisor who uses strategic asset allocation can improve your portfolio with assets in both stocks and bonds. A number of factors determine the percentage of your money in either asset class, including your risk tolerance, investment goals and your market timeline.

2. Tactical Asset Allocation

Like strategic asset allocation, tactical asset allocation is based on modern portfolio theory. This theory espouses diversification as the best way to reduce risk and increase the return your portfolio earns. While strategic asset allocation identifies the investment classes that are most appropriate for you, tactical asset allocation takes it a step further by determining the specific investment vehicles within those classes that are right for you. In other words, strategic asset allocation may dictate that you should invest in stocks and bonds, while tactical asset allocation will determine the specific individual stocks and bonds you should have in your portfolio.

If you don’t know how to pick stocks or how to choose bonds, then you probably do not know how to decide what stocks to invest in or how to decide what bonds to invest in. As a portfolio advisor in Virginia, HSC Wealth Advisors can help you answer the following two questions, among many others:

• What bonds work best with my portfolio?
• What stocks work best with my portfolio?

Seasoned financial advisors like the experts who work at HSC Wealth Advisors can teach you how to pick bonds and how to choose stocks by educating you about the choices that are available to you. A qualified financial planner will show you how to know what stocks work best with your portfolio and how to know what bonds work best with your portfolio. If you’ve recently asked yourself, “How am I to know what funds work best with my portfolio?”, you should contact HSC Wealth Advisors for assistance.

As you’re deciding what stock to invest in and choosing bonds, it is important for you to understand that tactical asset allocation involves a buy and hold investment strategy. This means that, as you’re choosing stocks and deciding what bond to invest in, you are selecting specific investments that will probably be part of your portfolio for the long-term, at least until it’s time to rebalance your portfolio.

Working with a financial advisor and understanding the inherent value of asset allocation and a long-term investment strategy can help you avoid making emotional decisions that might cause you to prematurely sell assets in reaction to market fluctuations. Research shows that people who do not adhere to a buy and hold investment strategy experience lower returns on their portfolios over time. Studies also indicate that a financial advisor can add up to 1.5 percent of value to your portfolio in this context by helping you stay the course.

3. No Load Funds and Commission-Free EFTs

Approximately 90 percent of consumers believe a financial planner should provide advice that is in the best interest of the consumers, rather than the advisor. If you share this belief, working with a fee-only vs. a fee-based advisor could be an important consideration for you.

In general, a fee-based broker or dealer has an obligation to make investment recommendations that are in compliance with a suitability standard which requires the advisor to sell you financial products that are suitable for you given your unique financial situation. Even if a more cost-effective, comparable product is available, the broker does not have to present it to you as an option as long as what you are investing in is appropriate for you.

By contrast, HSC Wealth Advisors has a fiduciary obligation to always put our clients’ interests first. As an independent, fee-only registered investment advisor, we only serve our clients, and we do more than find investment vehicles that are merely suitable for our clients. We offer investments that are unquestionably the right fit for your portfolio and that have low expense ratios. We reduce the cost of a financial advisor by charging a fee for our services, instead of collecting a commission on every investment you make through us as well.

If you are wondering how to reduce fees with a financial advisor, the answer is to work with a fee-only advisor in Virginia who knows how to keep the expenses your portfolio will incur to a minimum. Research shows that a financial advisor can add 0.45 percent to your portfolio’s performance by keeping investment fees low.

While there are no free investments even when you work with a fee-only financial advisor in Virginia, you will typically pay less when you have a fee-only financial advisor in Lynchburg than you would if you chose to work with a fee-based advisor in the same area over time. This is particularly true if you change your investment mix often.

4. Tax Efficiency

Studies show that tax-efficient investing and tax-free investing can add to the overall value of your portfolio. Depending on your tax location and other factors, the following three things can add up to 0.75 percent of value to your investment mix:

• Understanding what you should invest in
• Knowing when you should sell an asset
• Selecting an investment vehicle that has a small tax footprint

Fortunately, the CERTIFIED FINANCIAL PLANNERS™ and other experts at HSC Wealth Advisors are intimately familiar with tax-efficient investments, including tax-efficient mutual funds, tax-efficient bond funds and tax-efficient stock funds. Using your strategic asset allocation and your tactical asset allocation, we understand what you should invest in and we are prepared to help you select tax-efficient bonds, stocks and mutual funds to keep your exposure to taxes to a minimum. As a financial advisor serving Lynchburg and the surrounding areas, we’ll advise you about when you should sell the assets in your portfolio to maximize your return.

While paying taxes on investments is generally unavoidable, tax-free and tax-efficient investing options are available to you. Contact HSC Wealth Advisors to learn more today!

5. Rebalancing

Establishing the right asset allocation is key to making the right investment choices. Maintaining the appropriate asset allocation is equally critical to your long-term success in the market, which is why restoring balance to your portfolio is an ongoing part of the financial planning process.

Over time, the different investments included in your portfolio will generally produce different rates of return, which will cause your portfolio to become unbalanced when it is compared to your original asset allocation. This means your mix of stocks to bonds, or your stock to bond ratio, will change as time goes by and your portfolio will no longer reflect your investment preferences accurately. When this happens, readjusting your portfolio becomes necessary.

An experienced financial advisor is skilled at removing emotions from investing. Regardless of whether the market is bullish or bearish, rebalancing a portfolio often involves selling assets in classes that are performing well and reinvesting the proceeds in an asset class that is not performing as well. While this may seem counterintuitive, re-adjusting your portfolio in this manner is the best way to restore your original strategic asset allocation and keep you on track to achieve your financial goals.

Because it can be hard to accept that you should sell assets that are bringing in big returns in order to buy assets that aren’t performing as well, it is vital that you choose a financial advisor in Virginia or another state who has the discipline to rebalance your portfolio when it needs to be done. While you may feel like you are taking a leap of faith when it comes to rebalancing your investment mix, a financial advisor can add as much as 0.35 percent to the value of your portfolio in this context.

It is important for you to understand that re-adjusting your portfolio is not the same as knowing how to buy low and sell high and then doing it. Instead, rebalancing typically involves dollar-cost averaging, a process in which you sell high-performing assets and buy ones that aren’t performing well at regular intervals over time instead of all at once. The idea behind dollar-cost averaging is that you’ll sometimes pay less for more of an asset, while paying more for less of the same thing at other times, but your average per-share cost will be lower over time, which will increase your chances of making a profit.

Why HSC Wealth Advisors?

If you’re looking for an advisor for allocating assets and help with your finances in Virginia, contact HSC Wealth Advisors. Research has shown that we have the potential to add “about three percent” to your investment mix’s net returns. Our team of highly credentialed financial professionals works with people throughout the country to achieve their dreams. As a fee-only financial advisor, your best interests are our only interests at all times. We honor the fiduciary responsibility we have to only make recommendations that are in your best interests in everything we do.

For more than 30 years, people have trusted us to help them achieve their dreams, and we’ve done everything possible to make those come true. Let us help you make your dreams a reality. Contact HSC Wealth Advisors today.