Leaving it to the Pros

Summer is in full swing here in East TN. The birds are chirping and my garden is planted, but the grass in my yard is 2 feet tall. I normally mow every week, but sadly my lawnmower contracted an illness during the winter. Fancying myself a junior home repair expert, I attempted to diagnose the issue and fix the problem myself. Historically speaking, this has led to some prior success, and I was sure that this time would be no different. So I watched a few ‘how to’ videos online and I began to take my lawnmower apart. Before I knew it I had disassembled the starter motor, and when I attempted to put it back together again, I broke a mounting bracket that fits into the starter motor. Ta Da!

Normally at this point in the story, I would have bought replacement parts, watched more videos, sought the wise counsel of my father and brother, and ventured down the home repair rabbit hole to fix it. But due to the time constraints of a busy schedule, I decided to swallow my pride and called a repair shop. The verdict is still out on how much this mistake will cost me, but in the meantime, some kind neighbors are allowing me to borrow their mowers.

This wasn’t an easy decision for me to make because I like to fix things and save money in the process, but in the end it came down to realizing that I might end up doing more damage to the mower which might force me to buy a completely new one, and I didn’t have the time to spend nights and weekends working on this problem that I might not be able to fix.

My recent DIY dilemma reminded me of research conducted by the Vanguard group that studied the added value that hiring an advisor brings to an investor. They identified seven different categories of where advisors add alpha for their clients, which is detailed below in no particular order, and came up with an approximate value of that advise if it were translated into a yearly return number. The results show that advisors added nearly three percent of annual net return for their clients.

Some of the items on this list, such as rebalancing and cost-effective implementation, seem pretty reasonable and is something that many people could pick up and do themselves if they had the desire and wherewithal. The next tier would be choosing a suitable investment allocation and optimizing asset location. These two categories are a little more nuanced, and with additional training could be accomplished. These are similar to home repairs that an experienced homeowner can complete themselves: the home repair may not be pretty but it gets the job done for now, while a professional would be able to fix the issue and make sure that it wouldn’t come up again in the near future. (I have a certain faucet in my kitchen that comes to mind.)

However, when investors start looking at topics like behavioral coaching, withdrawal order, and total-return versus income investing, this is when, if you aren’t careful, investors could end up doing more harm than good. This would be akin to taking on a re-wiring project in a home. While you might be able to complete this with the proper tools and training, a mistake here can literally cause irreparable harm to both the home and its occupants if done incorrectly. In cases like this investors would be better served to hire a professional to make sure that the job is done right the first time. If attempted on their own, investors could find their portfolio harmed in irreparable ways that will affect their ability to maintain financial freedom.

While some investors have no trouble in seeking the counsel of experienced professionals to help them achieve their goals, whether they be personal or financial, it is important for us DIY inclined folks to remember that we won’t always be able to do everything ourselves. Having professional help will lead to more positive outcomes in terms of our long-term financial health and will keep your grass nice and short.

Nathan Smith is Portfolio Manager at Rather & Kittrell, and can be reached at [email protected].