By Lee Sherman
First things first. You are never too young to start planning for a secure financial future. And if done right, you won’t have to forgo pursuing your bucket list in order to have enough money to live comfortably later in life.
In fact, if you’re a millennial, you’re in a much better position than those who wait. While it might seem weird to think about something that’s so far off in the future, by doing so now you can earn and save more money as well as make a more careful determination on how to invest it.
Many millennials fall into a category called “high earner, not rich yet” (HENRY). Fortune magazine came up with the term a decade ago to describe families whose combined income is between $250,000 and $500,000. It sounds like a lot but after living expenses, taxes and paying off debts like student loans, you may not feel you have enough left over to invest in the market. What you need is a plan that can maximize those earnings.
Choosing a Financial Advisor
A good financial advisor can help you come up with a plan. While it’s tempting to want to invest in the latest unicorn, it’s particularly important to take the long view. You’ve got plenty of time to earn that nest egg so avoid “get rich quick” schemes and unproven financial vehicles like bitcoin. Looking out over the event horizon, you’ll see the ups and downs of the stock market play out but if you have a plan that tracks with the S&P 500 index, historical precedent suggests that you’ll make money. This is called “passive investing” and it is what many financial advisors recommend. Your financial advisor can help you determine your risk tolerance and come up with a balanced portfolio that works for you. Most have software that makes the risk analysis and subsequent planning surprisingly easy.
You’ll need to understand the different fee structures and how they can affect your plan. A fee-only financial advisor charges you for their service and doesn’t receive a commission on any of the financial products they recommend. They may charge a percentage of the assets you have under management, an hourly fee, or a retainer. If you’re just starting out, however, you should know that many won’t accept you as a client unless you are investing $250,000 or more. However, there are thousands of fee-only advisors that charge a flat one time or hourly fee for a plan.
Conflicts of Interest
Fewer conflicts of interest means you can more likely trust their advice, an important consideration when dealing with any professional. The fee structure of fee-only advisors are easy to understand so you’re also unlikely to get hit by any surprises. When a conflict does appear (such as when your advisor, who is basing their fee on the amount of assets under management recommends you keep money in an account rather than withdraw it) you’ll know it. That said, their focus is on giving you the best advice possible, not on trying to sell you a financial product.
Fee-based advisors are the opposite, in that they could receive commissions on the products they may recommend. While this doesn’t necessarily mean that they won’t provide you with sound advice, their recommendations can’t help but be more suspect.
Finally, look for a financial planner that is also a fiduciary. Fiduciaries are legally bound to act in your best interest, making them the most trustworthy of all.
Lee Sherman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Lee is an experienced journalist and editor with over 30 years of expertise with a significant history of writing in the personal finance and technology arenas.