Why investors need financial advisors

SSL In The Money


Wednesday, July 23, 2014

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PUTTING away funds for investment is very important. However, without professional help this seemingly simple task can be a daunting challenge for even the most disciplined investor. Even basic investments such as savings accounts and certificates of deposit must be managed if the intention of the owner of these accounts is, at the bare minimum, to preserve capital and maintain value.

There are a number of reasons why one may not see the need for a financial advisor. Let's face it, how hard can it be to start putting money away at an early age so that you can have it available when you get old? As simple as it may seem, without adequate planning and guidance, an individual investor stands to lose significant value over time.

However, with the help of a competent financial advisor, certain factors can be considered that will help to at least maintain the value and relevance of an individual investment portfolio.

The real value of money, not the nominal value, must be taken into account by an individual investor if spending power is to be maintained. Simply put, the nominal value of money is the amount of money you have, whilst the real value of money is the amount of goods and services that you can buy with the money you have.

Inflation, which is the general increase in prices, is a significant factor in determining the real value of money. In times of increasing inflation, the amount of goods and services that a dollar can pay for today will be much less in the future.

This is critical for financial planning as well as for managing an investment portfolio. Financial planners and investment advisors should, and will ensure that the return on an individual investment portfolio is equal to, or above, inflation.

In earlier years, investors in local repurchase arrangements and certificate of deposits were fortunate to be earning returns that kept up with, or returns that were, above inflation. The rates offered on these instruments today are significantly lower, and investors in these instruments, in real terms, are making negative returns.

There are a number of investment options available to investors across the three main asset classes. Deciding which investment can offer real returns to an individual investment portfolio or which investment is suitable for an investor's financial objective are all issues that will be discussed objectively with a financial advisor, with the aim of making investment decisions.

We have all, at some point in time, received a research article or two on some investment opportunity or research information on a company that has been doing well. As an individual investor, can you, in all honesty, say that you have the time to read those reports?

Or better yet, do you have the knowledge to understand the report let alone the basis of the report? Or can you, after reading the report, make the necessary investment decision? If you can, then you should be an investment advisor. But for those of you who cannot, having an investment advisor will add huge benefits and reward.

It is of utmost importance to stress the point that with investing, one size does not fit all. We all have different investment objectives, and our tolerance for risk or our risk appetites are different. Financial planners and advisors usually help with determining your risk profile/risk tolerance at the first stage of initial interview.

Whilst this can be done simply by using an online tool, situations and circumstances do change whether for better or for worse. Financial advisors are usually made aware of these changes and adequate amendments made to rebalance the investor's portfolio in accordance with new situations and circumstances.

Whilst a typical investment portfolio consists of cash, equities and bonds in varying forms, the allocation of funds to these asset classes will vary by individual. Having a financial advisor will help in determining suitable investment objectives as well as help the individual investor navigate through the myriad investment instruments that are available in order to determine the most appropriate for an investment portfolio.

Noel Harty is the manager of the Montego Bay branch at Stocks & Securities Ltd. Contact: nharty@sslinvest.com




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