Introduction
Investing is a great way to build wealth and achieve long-term financial goals. However, navigating the complexities of the financial markets can be challenging, and most people need help of financial advisors to guide them in their investment journey.
In the previous article on Advisor Role we saw how advisor can help in clarifying financial goals, help navigate market turbulence and help in behaviourally resilient portfolio management.
These are very critical aspects of financial planning and implementation. In addition to above advisors can help in many aspects of finances that can optimise and positively impact our portfolio.
A list of few items where they can help are given below.
Tax Efficiency
One key area where advisors can add value is in developing tax-efficient investment portfolios. Taxes can eat into investment returns, and investors can benefit from strategies like tax loss harvesting, tax gain harvesting, and investing in tax-advantages like 80C.
There are other lesser well known strategies of tax gain harvesting to extent the gains are not taxed. And Tax loss harvesting which allows for losses to be booked and carried forward and set of against gains in future.
Advisors can help investors understand how these strategies work and how they can benefit from them.
Optimise Risk
Another area where advisors can help is in managing investment risk. Risk is an inherent to investing, and investors need to take on some level of risk to achieve returns.
However, advisors can help investors determine the lowest possible risk they should take based on their financial goals, risk tolerance, and wealth level. By managing risk effectively, investors can achieve their financial goals without exposing themselves to unnecessary risk.
The sequence of investments and withdrawals can be done in such a way to provide some behavioural resilience by planning for short term buckets and emergency provisions while the long term investment like equity are allowed to grow.
Long Term Orientation
During critical times like market downturns, advisors can provide support to help investors stay focused on their long-term financial goals. It can be easy to get caught up in the fear and uncertainty of a market downturn and make impulsive decisions that can harm our investment portfolios. Advisors can help investors stay calm and rational, reminding them of their long-term investment objectives and helping them stay the course. This is a key part of how investors can benefit from support as this is one of hardest aspect if investment portfolio management to stay the course and not react to market events.
Savings Adequacy
In addition to providing support during market downturns, advisors can also help investors increase their savings rate. By providing a sense of how financial goals can be achieved over a given time frame, advisors can help investors determine the right savings rate to prioritize their financial goals. This can be an ongoing process as investors fine-tune their savings to keep up with changing financial goals and priorities. Essentially investors can be clearly shown a smaller savings spread over longer time is better and higher savings rate earlier is much better as compounding works best with this combination of high savings rate and longer time to compound.
Staying Course
Advisors can also educate investors on the time value of money and the importance of staying invested over the long term. By illustrating how different products and portfolios can impact the time value of money and real returns, advisors can help investors make informed decisions that align with their financial goals. In addition to choosing the right products based on time horizon and payoffs, one important aspect to allow for that product to perform over time which is staying the course of decisions to pay off in time. This is crucial element in ensuring that the investment plan is adhered to in terms of allowing time for the product to perform. As any premature exit only worsens overall portfolio. So staying course is a key aspect of unlocking the power of investment portfolio.
Summary
Thus Advisors can provide ongoing support and guidance to help investors optimize their portfolios and get the best possible returns from multiple perspectives.
This can include helping investors navigate market turbulence and behavioral biases, as well as providing ongoing education and support for tax-efficient investing, risk management, and savings rate optimization. By supporting investors in all aspects of their investment journey, advisors can help them achieve their financial goals and build long-term wealth.
So when you want to start out or in key moment on your investment journey definitely consider the services of a independent competent advisor as a key ally in your financial journey.
