You can make many financial decisions on your own, but it's probably best to get advice for some of the most important stuff.
Last month I wrote about how to find a top-quality financial adviser. But that raises the question: when do you need to get advice from a professional? And when can you make a financial decision on your own?
Here’s my answer:
Do it yourself
I’ll start with the decisions you can almost certainly take on your own. Picking a new credit card or savings account are the two most obvious. You can easily compare products at lovemoney.com and you’ll find loads more information in our articles.
You can also take the DIY approach if you want to take out a loan or buy insurance for your car or home. No need to get any advice.
Maybe take advice
Moving on, there are several areas where my view is ‘maybe.’ Let’s start with investment.
I see nothing wrong with managing a stock market portfolio on your own – if you want to. As long as you start out carefully - investing small amounts of money you can afford to lose – you should gradually become a decent investor who doesn’t need help from anyone else. Find out more in Make money from the stock market
Alternatively, you could just put your money in an index tracker fund. Then you’d benefit from rising stock markets without having to learn about the intricacies of company analysis. It’s pretty easy to pick a tracker fund, so advice isn’t essential .
That said, if you’re at all worried or unsure, then do get advice from an Independent Financial Adviser (IFA) or planner. And even if you feel confident that you can pick some decent investments yourself, you may need help when it comes to ‘asset allocation.’ In other words, deciding how much of your wealth should go in stocks and shares, how much in a savings account, how much in property, and so on.
Another ‘maybe’ area is mortgages. If you’re an independent soul who likes to do things on your own, then you’ll be able to find some market-leading mortgages by searching on the web. Start your search at lovemoney.com’s mortgage centre.
However, there’s a lot to be said for getting advice from a mortgage broker as well. If you search for a mortgage on your own, you may just focus on the interest rate and ignore important issues such as exit fees and legal costs. What’s more, a broker will be able to access some ‘broker only’ deals that aren’t on offer to customers who approach banks direct. I’ve always used a mortgage broker in the past and will do so again in the future.
You can reach brokers via our mortgage centre.
Mortgage brokers can also advise you on life insurance and this is another ‘maybe’ area for me. Life insurance can be quite complex and I’d also include other insurances such as Critical Illness Cover and Income Protection Insurance in this bracket. I’d quite understand if you felt you needed advice on which insurance to go for. Getting advice from a mortgage broker isn’t your only option, you could also get advice from a conventional IFA or planner.
If you feel confident enough to pick a life insurance policy on your own, lovemoney.com life insurance can guide you through the process online. Find out more in Five ways to protect your income.
Get help
Life insurance is a pretty gloomy subject and I’m now moving onto a topic that is almost as depressing – pensions. It’s depressing because many of us will be retired for 25 years or longer and it’s going to be hard to fund a decent lifestyle for such a long period.
Given its importance, I’d say it’s well worth getting some professional advice in this area.
If you’re fortunate enough to be a member of a final salary pension scheme , you won’t need a massive amount of advice. All an advisor need do is explain the terms of your scheme to you and make sure that the scheme will pay you a decent income when you retire.
Don’t relax too much though. If your employer is offering to pay you to transfer from a final salary scheme to a riskier defined contribution pension, you should almost certainly get advice. If you take the money on offer now, there’s a very good chance you’ll regret it when you’re in your 70s.
If you’re not a member of a final salary scheme, an advisor can help you decide how much you need to save for your old age. He can also help you choose the most appropriate savings vehicles for you. Even if you’re a member of a contributory scheme at work, you may find that you need to supplement that pension by saving via ISAs or investing in property.
Your will is another crucial area of financial planning. I think it’s a big mistake to do this on your own. If you get it wrong, your whole will could be invalid. Even worse, you may miss out on some simple tax planning strategies which could reduce the tax bill paid by your estate when you die.
In fact, if any aspect of your tax affairs is complex, it’s probably well worth getting some advice to see if you could pay less money each year.
So that’s my rundown on when you should get professional advice. Do you think I’ve got it right? I’d love to hear your views in the comments box.
More: Why a mortgage broker will always find you the best mortgage | Five steps to reduce your financial fear | 11 super websites for free financial advice