Financial markets have become increasingly complex, making it difficult for individual investors to navigate successfully on their own. Investors often face the question of whether hiring a financial advisor truly provides enough value to justify the fees.

Recent comprehensive research by Vanguard, DALBAR, and other industry experts provides compelling evidence that professional financial advice offers significant value beyond basic investment selection. 

A case for having a pro on your side

Skepticism toward the financial advice industry is understandable—bad experiences, opaque fee structures, or conflicts of interest have burned many investors. Stories of sales-driven advice and misaligned incentives have cast a long shadow. This article is not a defense of every advisor, but rather a case for how true fiduciary advice—delivered transparently and with accountability, can provide measurable value in an increasingly emotional and volatile investing environment.

This emotional volatility is not hypothetical. We live in an era of heightened uncertainty, with rapid market shifts and global instability testing investor patience. As Fisher (2025) highlights in The Psychology of Market Patience, staying invested through turbulence demands far more than logic—it requires resilience. In these moments, the steady presence of a fiduciary advisor can serve as both guide and guardrail, helping investors remain committed to their long-term goals.

Professional advisors serve not only as planners and portfolio managers but also as behavioral coaches and accountability partners. This role is becoming even more essential as emotional decision-making erodes individual investor returns. The following sections explore how advisors can help improve portfolio outcomes, increase the likelihood of meeting financial goals, and reduce the emotional cost of investing.

They help enhance your portfolio performance

One of the most critical aspects of working with a financial advisor is the potential for improved portfolio performance. Contrary to the popular belief that advisors primarily add value by outperforming the market, research indicates that the most meaningful advisor contributions come from disciplined investment strategies. Advisors employ practices such as improved diversification, regular portfolio rebalancing, and tax-efficient investing, each enhancing long-term returns (Pagliaro & Utkus, 2019).

Vanguard’s research quantifies this benefit, estimating that financial advisors may add about 3% per year in net returns compared to a typical self-directed investor (Kinniry et al., 2022). This incremental gain, compounded over years, translates into significantly greater wealth accumulation.  

They can walk with you through turbulent times

According to DALBAR’s 2024 Quantitative Analysis of Investor Behavior (QAIB) report, the average equity investor significantly underperformed the market. In 2023 alone, the typical equity investor earned 5.5% less than the S&P 500, marking the third-largest performance gap in the past decade (DALBAR, 2024). This underperformance primarily results from emotionally driven investment decisions, such as selling assets during downturns and missing subsequent rebounds.

DALBAR’s findings further illustrate this emotional cost during turbulent periods. For example, the average equity investor saw returns of -21.17% in 2022, compared to the S&P 500’s -18.11%. Even in the strong market rebound of 2023, investors again lagged the market substantially, achieving only 20.79% returns versus the S&P 500’s 26.29% (DALBAR, 2024). Such significant performance gaps highlight the crucial role of advisors in mitigating harmful investor behaviors.

they can lead you to your goals with precision

Beyond portfolio management, financial advisors significantly enhance investors' ability to achieve long-term financial goals such as retirement security. Vanguard’s study on Personal Advisor Services (PAS) reveals that advised investors have an 80% or higher chance of successfully meeting their retirement goals compared to investors without professional guidance (Pagliaro & Utkus, 2019).

The role of fiduciary advisors—professionals legally obligated to act in the best interests of their clients—is particularly critical. According to Sheldon Geller, fiduciary advisors are required to disclose and mitigate conflicts of interest, ensuring investment decisions prioritize client goals over personal or company gain. This fiduciary responsibility provides investors with assurance and confidence, contributing to better financial outcomes (Geller, 2017).

They provide emotional stability

One of the most valuable yet often overlooked benefits of financial advice is the emotional stability it provides. Behavioral finance studies show that individual investors frequently succumb to emotional biases such as overconfidence, excessive trading, and holding onto losing investments too long.

Maymin and Fisher (2011) emphasize the value financial advisors add through behavioral coaching, helping clients avoid impulsive decisions during market downturns. Vanguard's research quantifies this emotional benefit, attributing between 0 and 2% in additional annual returns to behavioral coaching alone (Kinniry et al., 2022). Trust and personal connection further account for nearly half of the perceived value in advisor-client relationships, empowering clients to stay committed to their investment strategies during volatile periods (Pagliaro & Utkus, 2019). 

They will help you stick to a long-term strategy

Investor discipline, encouraged by advisors, remains critical for achieving optimal returns. DALBAR’s findings underscore how investor behavior significantly impacts returns. The report indicates that investors who maintain long-term strategies, supported by professional guidance, substantially outperform those who make emotional decisions (DALBAR, 2024).

The historical evidence from DALBAR’s extensive research over the past 30 years consistently shows that emotional investment decisions are detrimental. Advisors counteract this by instilling discipline, maintaining structured investment strategies, and reinforcing long-term thinking, resulting in better investment outcomes.

find an advisor who helps you go further than you could alone

Despite substantial evidence supporting the value of financial advice, some investors remain skeptical, often due to isolated cases of underperformance by certain advisors. However, focusing solely on short-term investment returns can be misleading. The primary value of financial advice lies in comprehensive financial planning, disciplined behavioral coaching, and fiduciary oversight.

Investors should critically evaluate advisors based on their holistic service offerings, transparency, and fiduciary commitment rather than just short-term market performance. Effective advisors deliver measurable benefits through strategic planning, emotional guidance, and long-term investment discipline.  

being a FIDUCIARY matters

Understanding the differences among fiduciary, quasi-fiduciary, and non-fiduciary advice is essential. According to Fisher (2025), only about 4.92% of financial professionals in the U.S. operate as fee-only fiduciaries, legally obligated to place their clients' best interests above their own and disclose any potential conflicts of interest. Quasi-fiduciary advisors might follow fiduciary standards selectively or in certain situations but may still receive commissions or have other conflicts of interest. Non-fiduciary advisors, such as brokers, typically operate under suitability standards rather than fiduciary obligations, often leading to decisions that may not align with optimal client outcomes (Fisher, 2025).

The distinction between these advisory models is critical for investors. True fiduciary advisors provide greater transparency, reduce conflicts of interest, and often result in higher client satisfaction and better long-term financial outcomes. 

Invest wisely with professional guidance

Navigating today's financial landscape alone poses substantial risks, primarily due to emotional biases and complex market dynamics. Research from Vanguard, DALBAR, and leading financial experts clearly demonstrates the profound impact professional financial advisors have on investor outcomes. Advisors not only enhance portfolio returns but also significantly increase the likelihood of achieving critical financial goals and provide invaluable emotional reassurance.

Ultimately, investors who recognize and leverage the full spectrum of benefits offered by professional financial advice position themselves to achieve greater financial security, resilience, and long-term success.

References:

DALBAR. (2024). Quantitative Analysis of Investor Behavior (QAIB) Report. DALBAR, Inc. Retrieved from www.qaib.com

Fisher, P. (2025, April 6). The psychology of market patience. Human Investing. Human Investing. https://www.humaninvesting.com/450-journal/psychology-of-market-patience

Fisher, P. (2025, February 14). An analysis of investment advisor representatives and bureau of labor statistics data: Determining the percentage of financial advisors acting as true fiduciaries. https://www.humaninvesting.com/450-journal/only-5-percent-of-advisors-are-true-fiduciaries. Human Investing.

Geller, S. M. (2017). Retaining a fiduciary investment advisor. The CPA Journal, 72-73.

Kinniry, F. M. Jr., Jaconetti, C. M., DiJoseph, M. A., Walker, D. J., & Quinn, M. C. (2022). Putting a value on your value: Quantifying Vanguard Advisor’s Alpha. Vanguard Research.

Maymin, P. Z., & Fisher, G. S. (2011). Preventing emotional investing: An added value of an investment advisor. The Journal of Wealth Management, 13(4), 34-43. https://doi.org/10.3905/jwm.2011.13.4.034

Pagliaro, C. A., & Utkus, S. P. (2019).Assessing the value of advice. Vanguard Research.

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A BOOK FOR THE SAVER IN ALL OF US

Becoming a 401(k) Millionaire isn’t your typical retirement guide. With 30 years in finance, Dr. Peter Fisher shares personal insights and real stories to help you plan with confidence.

Learn more

Disclosure: Human Investing is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). Registration with the SEC does not imply a certain level of skill or training. This article is provided for informational and educational purposes only and should not be construed as personalized investment advice. The information contained herein is believed to be accurate as of the publication date but is subject to change without notice. Past performance is not indicative of future results. Index performance is shown for illustrative purposes only and does not represent the performance of any specific investment. Investors cannot invest directly in an index, and index returns do not reflect fees, expenses, or taxes. The estimated value added by advisors is based on research and modeling assumptions that may not reflect actual investor experiences. Actual results will vary based on individual circumstances, market conditions, and advisor practices. Investing involves risk, including the potential loss of principal. Readers should consult with a qualified financial advisor to assess their individual circumstances before making any financial decisions.

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A financial plan is a structured approach to managing one’s financial life. It is not merely a spreadsheet or a collection of investment products—it is a comprehensive framework that organizes income, expenses, savings, risk management, taxes, and long-term goals into a cohesive, actionable strategy. When constructed properly, a financial plan enhances decision-making, reduces uncertainty, and improves financial outcomes (Nissenbaum, Raasch, & Ratner, 2004).

Yet if financial planning is so powerful, why do so few follow through?

The answer often lies not in math, but in mindset. Research shows that even financially literate individuals struggle to plan for the future when they lack self-control, future orientation, or supportive social norms (Tomar, Baker, Kumar, & Hoffmann, 2021). A well-designed plan must account not just for assets and liabilities—but for human behavior. That’s why the best financial plans are often paired with an accredited fiduciary advisor, who offers a simple, visual, and tailored approach to help you make decisions.

At its core, a financial plan helps individuals clarify what matters most and align their resources accordingly. Whether navigating early adulthood, managing a growing family, or preparing for retirement, individuals benefit from a written plan that reflects financial priorities and personal values. In my work as a financial advisor and educator, I have seen that the most significant breakthroughs often come not from more money, but from more clarity.

the purpose of a financial plan

The purpose of a financial plan is twofold: to organize current financial resources and to make informed decisions about the future. This may sound straightforward, but the complexity of modern financial life often makes it difficult for individuals to answer even basic questions such as, "Can I afford this?" or "Am I on track?" A financial plan provides a framework to answer these questions thoughtfully and methodically.

More than a static document, a financial plan is a living tool. It should evolve alongside an individual's life stages, economic conditions, and shifting priorities. According to Nissenbaum, Raasch, and Ratner (2004), regularly reviewed and updated plans yield significantly better financial outcomes over time.

It starts with defining your goals

Goal-setting is the anchor of any financial plan. Without clear goals, even the most sophisticated strategies can lose direction. Goals give context to numbers and bring meaning to saving and investing. They can be short-term (saving for a vacation), mid-term (purchasing a home), or long-term (funding retirement or creating a legacy).

One of the most effective frameworks for goal setting is the SMART method—specific, Measurable, Achievable, Relevant, and Time-bound. Goals should inspire and direct behavior. In my experience, clients who articulate their goals clearly are far more likely to follow through on their plans.

components of a comprehensive plan

A thorough financial plan includes several interdependent elements, each of which contributes to the individual's or household's overall financial health. According to Ernst & Young’s Personal Financial Planning Guide (Nissenbaum et al., 2004), the five essential components are:

1. Cash Flow and Budgeting
   Understanding income and expenses is the foundation of any financial plan. A clear cash flow picture allows individuals to make informed decisions about saving, spending, and giving. Budgeting is not about restriction; it is about intentionality. When individuals budget effectively, they begin to control their money rather than letting money control them.

2. Risk Management and Insurance
   Life is unpredictable. A good financial plan includes appropriate insurance coverage to protect against major disruptions—including illness, disability, death, or property loss. While not exciting, insurance serves as a financial firewall. Emergency savings also fall into this category, with most professionals recommending a reserve of 3 to 6 months of essential expenses.

3. Tax Planning
   Tax efficiency is a core pillar of financial planning. Smart planning reduces unnecessary tax burdens and aligns financial decisions with long-term goals. This includes strategic use of tax-advantaged accounts, such as IRAs and 401(k)s, as well as decisions around capital gains, charitable giving, and income timing.

4. Investment Planning
   Investments must serve the plan—not the other way around. A financial plan defines the purpose, time horizon, and risk tolerance for each investment goal. This helps investors avoid emotional decisions and focus on long-term strategies. Diversification, asset allocation, and periodic rebalancing are all part of this disciplined approach.

5. Retirement and Estate Planning
   A financial plan must consider the future. This includes projecting future income needs, optimizing Social Security benefits, managing required minimum distributions (RMDs), and crafting an estate plan that reflects one’s legacy goals. Planning ahead ensures that wealth is transferred intentionally and tax-efficiently.

Building a financial plan: a step-by-step process

While the components of a financial plan are well-established, the process of creating one can be deeply personal. Below is a common approach used by both individuals and professionals:

1. Establish Goals and Priorities
   Start by asking what matters most. What do you want your money to do for you? What are your non-negotiables? Apply the SMART method in making them more attainable. Writing these goals down is a powerful first step.

2. Gather Data
   Collect all relevant financial information, including income, expenses, debts, assets, insurance policies, and legal documents. The accuracy of your plan depends on the quality of your data.

3. Analyze and Diagnose
   Identify gaps, inefficiencies, or risks. This includes assessing debt levels, reviewing savings rates, stress-testing for emergencies, and evaluating investment alignment.

4. Develop Strategies
   Design strategies that address the specific needs uncovered in your analysis. This might include refinancing high-interest debt, increasing retirement contributions, or adjusting your investment allocation.

5. Implement the Plan
   Execution is where many plans fall apart. Automate good behavior when possible—automated savings, investment contributions, and bill payments reduce reliance on willpower.

6. Monitor and Review
   Plans should be reviewed at least annually, and anytime there is a significant life event (e.g., marriage, new job, birth of a child). Adjustments should be proactive, not reactive.

Behavioral considerations in financial planning

Financial planning is as much about psychology as it is about math. Behavioral finance has shown that individuals often act irrationally with money due to cognitive biases, emotional reactions, and social pressures. A written financial plan serves as a behavioral anchor—a tool that reduces the likelihood of impulsive decisions.

Recent research reinforces the role of psychology in retirement financial planning. Tomar, Baker, Kumar, and Hoffmann (2021) identify several psychological determinants that significantly impact whether individuals engage in effective planning. These include future time perspective (the ability to think long-term), self-control, planning attitudes, and financial knowledge. In other words, it is not enough to know what to do; one must also be inclined to do it. Social norms and perceived behavioral control also play an influential role, suggesting that a supportive environment enhances financial planning behavior.

Research has shown that investors with written plans are more likely to stay invested during market volatility, rebalance their portfolios regularly, and avoid the pitfalls of market timing. A plan brings structure, and structure supports discipline.

common mistakes and how to avoid them

Even well-intentioned individuals fall prey to common planning mistakes. These include:

• Neglecting emergency savings

• Underestimating expenses in retirement

• Taking on too much investment risk

• Failing to review insurance coverage

• Overlooking tax implications of financial decisions

• Not discussing financial goals with a spouse or partner

Avoiding these mistakes begins with awareness and regularly revisiting the plan. A good advisor doesn’t just build a plan—they help you adapt it.

the value of working with an advisor

While many individuals can build a basic plan on their own, the guidance of a fiduciary financial advisor can add significant value. Advisors provide objectivity, technical expertise, and behavioral coaching. At Human Investing, we believe our highest calling is to serve as guides—helping clients navigate complexity with wisdom and clarity.

Importantly, not all financial advisors are held to the same standard. A fiduciary advisor is legally obligated to act in your best interest. Yet even among those who use the fiduciary label, fewer than five percent operate without receiving any form of commission (Fisher, 2025). That’s why the true fiduciary standard—free from all commissions—should be the baseline, not the exception.

turn intention into action

A financial plan is not just a document—it’s a decision. It reflects your willingness to take control of your future instead of drifting into it. The most successful outcomes aren’t reserved for the wealthiest or the most analytical—they’re earned by those who start, stay consistent, and make adjustments along the way.

If you’ve made it this far, you already care about your financial future. The next step is simple, but powerful: act. Whether it’s writing down your goals, scheduling time to review your budget, or meeting with a fiduciary advisor, do one thing today that your future self will thank you for.

Your money needs a plan. And now, you have the framework to build one that works.

References
Fisher, P. (2025, February 14). Only 4.92% of advisors are true fiduciaries. Is yours? Human Investing. https://www.humaninvesting.com/450-journal/only-5-percent-of-advisors-are-true-fiduciaries

Nissenbaum, M., Raasch, B. J., & Ratner, C. L. (2004). Ernst & Young's personal financial planning guide. John Wiley & Sons.

Tomar, S., Baker, H. K., Kumar, S., & Hoffmann, A. O. (2021). Psychological determinants of retirement financial planning behavior. Journal of Business Research, 133, 432–449.

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Disclosures: Human Investing is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). Registration with the SEC does not imply a certain level of skill or training. This article is provided for informational and educational purposes only and should not be construed as personalized investment advice. The information contained herein is believed to be accurate as of the publication date but is subject to change without notice. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal. Readers should consult with a qualified financial advisor to assess their individual circumstances before making any financial decisions.

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Not sure what questions to ask when you meet with an advisor?

Here are six questions we commonly get asked with some advice from our team.

1. I want to support my child through college. When should I start saving?

The earlier you save, the more time your money has to grow.

The benefits of saving early are dramatic, but there's still value in starting now—even if your child is in high school. The dollars you save will not have as much time to grow, but they are dollars you will not be borrowing. You’ll also be in a better situation if you choose an account that gives you tax benefits, such as immediate tax deductions or tax-free withdrawals.

Still not sure if saving for college is right for you? Check out this article by Peter Fisher, co-founder and managing partner of Human Investing.

2. Should I spend my cash paying off high interest loans, or invest it?

Historically, the average rate of return for stock market investments is approximately 10%, while on average, the APR on credit cards has been hovering just above 20%. So, if you are investing when you have credit card debt, you are likely paying a higher interest rate on your debt than you are earning via your investments. Unless you have a huge amount in investments, you end up losing money overall.

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3. When do I start saving for retirement?

Again, start saving as early as possible to give your money maximum time to grow. Depending on your employer, you may already have some form of retirement benefits accruing. There are various ways of saving for retirement, including employer sponsored plans like 401(k) and 457b plans, or personal retirement savings like Roth and Traditional IRA’s. A mix of the two is the best way to ensure ample savings for retirement, but deciding which is best for you requires some analysis of your current and expected employment and income status.

4. Is my investment portfolio right for me?

As you age and get closer to retirement, you want to make sure the risk level of your investment portfolio is balanced to match your growth and maintenance needs. While having all of your investments allocated in the stock market may result in a high return on investment, it can also result in high losses. This can be catastrophic for a person planning on retiring soon. On the other hand, if a young person has a few decades before they are planning to retire, but they are only investing their money in bonds, they are losing out on the potential growth of higher risk investment options.

 Investment in both bonds and stocks allows for a mix of potential income and growth, and the best fitting ratio is different for everyone. Reach out to us to speak with our retirement planning team to discuss your current allocations. We care here to help better prepare you for a comfortable retirement.

5. What should my emergency savings look like?

The most common numbers suggested for an emergency fund is 3-6 months’ worth of your current living expenses. These include expenses such as housing, food, healthcare, debts, and so on. You do not need to include things like entertainment, nonessential shopping, or vacation expenses. If you are, you have too much going into your emergency savings fund that could be invested elsewhere. Below is a chart showing example savings amounts and how they compound over the course of two years.  

6. When should I begin utilizing expert tax services?

You may be at a point where using your preferred e-file service to do your taxes is still getting the job done just fine, but at what point do they get too complicated for you to be doing them on your own? Once you begin to deal with things like property taxes, retirement plans, and investments, it may be best to have an expert handle the numbers for you.

Luke Schultz, the Director of Tax at Human Investing, has over 12 years of experience in the areas of tax compliance and planning. With a heavy focus on planning, he spends much of his time working closely with individuals, putting emphasis on proactive planning to help clients make the best decisions for them and their families.

Want to get started?

Schedule an appointment with an advisor here or feel free to call us at 503-905-3108.

Sources:
Vanguard, When should you start saving for college?
The Balance, Rule of Thumb: Should I Pay Off Debt or Invest?
Money Under 30, Should You Pay Off Student Loans Early?

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A fiduciary is defined as an individual or a legal entity, such as a financial advisor. The fiduciary takes on the responsibility and has the power to act in the interest of another. This other person is called a beneficiary or principal—we call them member, human, or client.

A fiduciary financial advisor (which is all we have at Human Investing) cannot sell products that charge or pay commissions.

When a member works with a Human Investing financial advisor, the client gives the advisor their trust and expects recommendations to be made with honesty and good faith in keeping with their best interests. This may not always be the case with a non-fiduciary advisor.

The Fiduciary Standard

All Human Investing employees are required to abide by the fiduciary standard. When a financial advisor has a fiduciary duty, they must always act in the beneficiary's best interest.

Financial advisors fall into two buckets: fiduciaries and non-fiduciaries. Surprisingly, not all financial advisors have a requirement to put member's interests first. Worse yet, some advisors and their firms can be dually registered, swapping back and forth between fiduciary and non-fiduciary roles.

Suitability Standard vs. Fiduciary Standard

Financial professionals who are not fiduciaries are held to a lesser standard known as the "suitability standard." What this means is that the recommendation from a non-fiduciary only needs to be adequate.

Other Watch Outs When selecting an Advisor

If an advisor states that they have FINRA Series 7, 6, or 63, that means they are licensed to sell products for commissions. An advisor would only have those licenses for two reasons: 1) to sell commission products or 2) collect commissions from products they (or someone else) have sold.

There are many individuals and firms that say they are financial planners and do financial planning. But did you know that many of the people that say they are financial planners are not trained in the process and profession of being a financial planner? Individuals responsible for member financial planning are CERTIFIED FINANCIAL PLANNERS™. A CERTIFIED FINANCIAL PLANNER™ certification is “the standard of excellence in financial planning. CFP® professionals meet rigorous education, training and ethical standards, and are committed to serving their clients' best interests today to prepare them for a more secure tomorrow.”

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Benjamin Franklin’s quote applies to many choices we make – including personal finances. If we don’t take his message to heart, then a lack of planning can be costly.

There are traditionally two paths one will take when purchasing a large expense. They will either build a plan ahead of time to achieve a financial goal, or—the more popular path—worry about it when the expense arises. It is important to consider the hidden cost when financing a large future expense.

NOT PLANNING AHEAD MAY cost you more than YOU THINK.

Let’s take the example of a future expense of $25,000 for any situation*.

*Fill in the blank: year of college for a child 👩‍🎓, down payment for a home🏠, wedding 👰🏻, car purchase 🚘, vacation 🌞, etc.

How do you pay for the $25,000 future expense?

In this hypothetical, an individual can choose to (A) make a monthly investment over the next 10 years or (B) borrow the $25,000 and make monthly payments to pay off debt for the next 10 years. See the cost break down here:

Note: This is for illustrative purposes only. Investment returns, interest rates, and loan periods will vary.

SO WHAT ARE YOU PLANNING FOR TOMORROW?

Building a savings plan and starting early provides 27% in savings over 10 years, with a total cost of only $18,240. Conversely, the cost of convenience by borrowing adds to the overall cost by more than 33%, raising the cost to $33,360. This example is at a 6% interest rate, but unfortunately, much consumer debt is often financed on a credit card with an average APR now above 16%. A 16% interest rate on a one-time expense would more than double the cost over 10 years.

This simple illustration provides a two-sided application. As illustrated above, building a financial plan can save someone thousands of dollars. Procrastinating and not building a plan can in turn cost someone thousands. Either way you look at it, it is important to consider the real cost of any financial endeavor in order to make a well-informed decision.

Our team at Human Investing is available if you have questions or would like help building a financial plan.

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@priscilladupreez

In order to achieve retirement readiness, financial planning should be the focus of most individuals and families. Indeed, knowing how much a household needs to save and invest in producing a suitable level of income at retirement makes much sense.  At the same time, given the recent uptick in market volatility, I have noticed additional benefits.  Clients who have gone through the financial planning process appear to be at greater peace with the stock market gyrations.  Further, when focused on executing their plan and not mentally tethered to the markets, clients are less prone to letting their behavior negatively impact their long-term performance.

Much of the time, financial planning does a great job of identifying how much an individual or family should own in both "safe" and "risk" investments to meet short-term cash and safety needs, as well as long-term growth objectives.  In the absence of a financial plan, investors are left to wonder if they have the right mix of investments.  Moreover, when market volatility increases, they are often the first to let their emotions get the best of them.  Absent a financial plan; the focus is on the stock market.  If the focus is on the stock market, and the market is temporarily going down, the pain of the volatility or what psychologists call "loss aversion bias" is too much to handle.  As a result, at exactly the wrong time and for the wrong reason, we get a call to "sell everything" locking in those temporary losses—only to see the market recover as the investor sits on the sideline wondering when to get back in.  Selling into a market that is going down is a significant reason investor returns and market returns are so different.

Dalbar, Inc. tracks investor return versus market returns, and the results are eye-opening. Our observation is that much of the gap between the long-term investor return and the long-term market returns are due to poor behavior and investors lacking a financial plan.  In our view, having a financial plan is paramount as it gives a leg up to investors in two ways: 1) it helps center the discussion about money around goals and 2) it allows investors to minimize their dependence on monthly, quarterly, and annual stock market swings while redirecting the discussion back to goals-based planning.  Goals-based planning is just a discussion on how many dollars will be needed and in what timeframe—this process alone will help determine the amount of safe versus risky investments.  

Finally, comprehending the odds of success or failure in the market may be a massive help in keeping nerves at bay and focused on the things that matter most.  Although the legal language would point us towards a statement about past performance being no indication of future success, we can look at the distribution of returns in the stock market going back to 1825 and feel very good about the chance of a positive outcome.  It all adds up to 71.5% of the time the stock market has been favorable, in spite of many ups and downs in between.

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As our friends at Charles Schwab post their 2018 Modern Wealth Index data[1], their research findings are eye-opening:   

1. Sixty percent of Americans live paycheck to paycheck

2. Only twenty-five percent have a written financial plan.

Ultimately, the Schwab findings point to a challenging financial future for most American.  About one-half of all American households with residents age 55 and older have no savings such as a 401(k) plan or IRA.  The latest GAO report findings make sense given the number of workers living paycheck to paycheck.

Money isn’t something a whole lot of people enjoy talking about, but at some point, the tone should change so that we can put these glaring facts on the table and work towards a flexible solution.  It seems the findings are explicit (at least with the 2018 Modern Wealth Index): if you have a written plan, you’ll be in the top decile of financial performers.  In other words, you’ll put yourself in an optimal position to have both financial peace and wellness.

[1] www.aboutschwab.come/modern-wealth-index-2018

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Exciting news from the Human Investing office:  In the year 2017 alone five babies will be born into the families of Human Investing (2 girls and 2 boys already, with 1 boy on his way)! For myself and the other new parents in our office, 2017 has already been a year of much joy, little sleep, ‘dad jokes’, cliché parenting sayings and a bunch of finance nerds trying to figure out how to care for their little ones and save for their college education. Here’s what we came up with. First the cost –

In recent years, the average rate of inflation in college costs has been about 5%.

Source: National average cost data © 2017 The College Board, “Trends in College Pricing 2016.”

Parents like my wife and I and others in the office may have different goals and philosophies on how much we would like to cover for our child’s education expenses - whether a dollar amount, like $50k, or a percent of the education expense. Whatever the philosophy, we understand the need to save. But what is the best vehicle to do so? Here are a few of the most common options and some important considerations to take into account when saving or choosing an account type:

• 529 Savings Plan: 529 accounts allow you to set aside after-tax contributions that grow tax free. The balance can be used for qualified higher education expenses, such as tuition, room and board, and books. States may offer 529 plans to residents, often with tax breaks or additional incentives - check your state here.

• Coverdell Education Savings Account (ESA): ESAs allow you to set aside after-tax contributions that grow tax free. Account value can be used for expenses not exclusive to college. Unlike 529 plans, there is flexibility to use ESAs for qualified education expenses from Kindergarten through Graduate School.

• Roth IRA: The Roth IRA can be used as a combination retirement account and educational savings vehicle. Your after-tax (Roth) contributions can be invested for retirement purposes and college expenses can be withdrawn with exemption to early withdrawal penalties. Additionally, the value of your Roth IRA will not hurt chances for financial aid eligibility as it is not considered assets on the Free Application for Federal Student Aid (FAFSA).

• Uniform Gifts to Minors Act and Uniform Transfer to Minors Act (UGMA/UTMA): The original college savings account, UGMA/UTMA assets are transferred to the child’s account and are invested on their behalf until he or she reaches age 18 – 21 (defined by state). At this time, the beneficiary can use dollars for whatever they wish. With a UGMA /UTMA you can realize $1,050 of gains tax-free per year. Note: UGMA/UTMA is in the child’s ownership for FAFSA purposes.

* This data is provided by www.savingforcollege.com and is subject to change. The numbers provided reflect 2017 regulation and will fluctuate with time. Please contact a trusted tax professional to understand exact tax implications.

The consensus: If you are looking to maximize saving for college and want to make it a family affair (any one can contribute) then the 529 is the best option. If you are not sure about college for your child but would still like to save for their future, then other great options like a UGMA/UTMA may be beneficial. Want to talk about what type of account is best for you or share baby stories? Let’s talk, Human Investing is here to help.

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