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The Ohio Department of Aging

Ohio Department of Aging Boomerang: It all comes back to you!

Boomerang: It all comes back to you!

My Future - December 2010

When it comes to financial planning, should you do it yourself or hire a pro?
Assess your situation and yourself, and know when and how to get help

Many boomers today are choosing to develop their own financial plans, rather than hire a financial planner. After all, most of the information and tools you need are free and readily available. Unfortunately, according to the AARP Public Policy Institute, only half of all baby boomers have planned sufficiently for retirement, and significant numbers have not. They cite recent reports that as many as one in four boomers can't afford to retire, and most do not have a realistic idea of how much money they will need in retirement.

Only half of all baby boomers have planned sufficiently for retirement.The main reason most people give for managing their own portfolios is control. When we make our own investment decisions, we control all of our money and are responsible for all our gains (and losses). Others choose not to hire an advisor for privacy reasons, trust issues or financial concerns. They don't trust someone else to make responsible choices with their money, or they believe they can't afford an advisor. Whatever your reason, if you choose to do your own financial planning, here's what you will need to be successful, according to financial speaker, Jim Yih:

  • Access to information, particularly about taxes, stocks, mutual funds and investments, most of which is available for free online;
  • Access to information that isn't free, such as books, computer software and subscription-based publications;
  • The desire and ability to do the work, learn and keep up with the latest investment news;
  • The time to make sense of the information available and filter the good from the bad; and
  • People to bounce ideas off of who are as knowledgeable and driven as you are.

Start by identifying and writing down your goals. This is where many do-it-yourselfers find that their goals and those of their spouses aren't necessarily in sync. If this is the case, you should discuss your goals and develop a plan that you can work on together. Next, you need to know where you stand right now. Make a list of all your current investment tools, including IRAs, 401k accounts, savings bonds, CDs and so on. Gather the appropriate paperwork or write down how to access this information online. This also is a good time to gather information about any debt you may have, along with your credit score.

We each have a unique "money personality," says Brent Kessel at MSN Money. Early experiences drive us to adopt certain attitudes about spending, giving and investing. Do you spend virtually every dollar you make, or are you a saver? Do you only think about your finances when there is a problem? Do you feel it is okay to be in debt? Kessel suggests that you have to identify and deal with your "inner relationship with money" to truly be successful at financial planning. Several online money personality quizzes will help you determine whether you are the type that always is alert and careful with money, the type that likes to accumulate assets, or the type that feels that wealth is meant to be shared.

It may be at this point that you decide you need the help of a professional financial planner. The challenge, says AARP, is to find a pro who is a good match for you and your situation. Particularly, look for "someone with experience, integrity and a working style that makes you comfortable." Start by asking friends and family for referrals, but seek input particularly from those whose life circumstances are similar to yours. You want to pick a professional who has built his or her practice around people with similar goals, lifestyles and net worth as you.

Get several names and interview at least two or three before you decide on one. Ask about each advisor's professional experience and credentials and investment philosophy and ask them to describe their "average" client. Also ask about education, experience and specific training. If an advisor touts a certain designation, such as Certified Financial Planner or Registered Investment Advisor, ask him what that credential means and what it requires to maintain.

Finally, ask each candidate how they get paid. They may charge a percent of your assets that they manage, others may charge a flat or hourly fee. "Some managers are compensated based on the products they sell you, and some professionals have more than one way to charge, depending on the service they provide," says AARP. "Ask for a clear statement as to where compensation comes from and how you will pay. Don't hire anyone who is not clear and forthcoming on this question."

Managing your own investment portfolio may be simple, but it isn't easy and shouldn't be taken lightly. Evaluate your situation, your goals and your attitudes, and if you decide you need assistance, find a professional who can address your specific needs.