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A financial advisor for investing may help you develop and manage a portfolio based on your financial goals. They can provide guidance on diversification, risk exposure, and potential tax considerations. An advisor may also assist with reviewing your investment approach as your circumstances or the market change.
If you want to create an investment plan, a financial advisor can help you build a strategy that fits with your goals, risk level and timeline.
Investment Strategy and Portfolio Construction
A financial advisor begins by getting to know your overall financial picture. This includes your financial goals, risk tolerance, annual income, expenses and investment timeline. They can then design a strategy that balances risk and return in a way that supports your long-term objectives.
This often involves choosing the right mix of asset classes. This can include U.S. stocks, international equities, bonds, real estate investment trusts (REITs) and alternative investments.
For example, a younger investor saving for retirement in 30 years might use a more aggressive asset allocation weighted heavily toward stocks. Meanwhile, a retiree drawing down funds may hold more bonds and cash equivalents to reduce volatility.
A financial advisor may regularly review and rebalance your portfolio to adapt to changing circumstances. This process can help keep your investment mix aligned with your risk tolerance and long-term objectives as markets fluctuate. It may also reflect major life changes such as retirement, career shifts, or new financial priorities, helping your portfolio stay consistent with your overall financial plan.
Tax-Efficient Investing
When creating a financial plan, an advisor may be able to help lower your tax liability. This may include different investment strategies, such as transferring tax-inefficient assets, like bonds and REITs, to tax-deferred accounts. Another option is to hold stocks in taxable accounts, so you can benefit from lower long-term capital gains rates.
Advisors may also use tax-loss harvesting, a strategy that involves selling investments at a loss to offset gains and reduce taxable income.
For high-income earners, an advisor may recommend using backdoor Roth IRA strategies, health savings accounts (HSAs) or charitable giving vehicles, such as donor-advised funds, to further reduce taxable income while continuing to invest.
Retirement Planning and Long-Term Investing
Many people hire a financial advisor specifically to prepare for retirement. Investing with retirement in mind requires a forward-looking approach that balances growth with income preservation. Advisors can help estimate how much you need to retire comfortably and then design a plan to help you achieve that goal.
They may use tools, such as Monte Carlo simulations, to test various investment scenarios and withdrawal strategies. For clients nearing retirement, advisors often recommend adjusting the asset allocation to reduce risk. This may mean shifting from aggressive equity holdings to a more conservative mix of bonds, dividend-paying stocks and annuities.
A financial advisor can also help determine the best time to start drawing down retirement accounts. They can coordinate withdrawals to minimize taxes and project how long your portfolio will last, allowing you to adequately prepare.
For example, a 60-year-old with a $1 million portfolio might work with an advisor to employ a 4% withdrawal strategy, delaying Social Security benefits while investing in a bucket system to separate near-term and long-term needs.
Behavioral Coaching and Market Volatility
Even the most carefully constructed investment strategy can be derailed by emotion. That is why one of the most underrated services a financial advisor provides is behavioral coaching.
During market volatility, it is natural for investors to panic. This could prompt them to sell low during a crash or buy high during a rally. However, a financial advisor can help you avoid making impulsive decisions, allowing you to remain focused on your goals.
For example, during the COVID-19 crash in 2020, many advisors reminded clients of their long-term strategy and encouraged them not to sell out of fear. Clients who stayed invested often recovered within months and saw long-term gains.
In addition to preventing emotional mistakes, advisors can help you interpret market news, economic reports and Fed policy decisions with context so you are not making knee-jerk changes based on headlines.
Specialized Investment Scenarios
Investing often goes beyond just stocks and bonds. For many individuals, wealth building involves navigating more complicated financial situations.
There are some specific scenarios where a financial advisor can help.
- A windfall or inheritance. Advisors can help you create a long-term plan for preserving inherited wealth or sudden financial gains. This could be from a sale, bonus or legal settlement. Your advisor can help you balance immediate goals with future security.
- Equity compensation. If you have been granted stock options or restricted stock units (RSUs), an advisor can guide you on when and how to exercise or liquidate them, while still diversifying your portfolio and minimizing tax exposure.
- Reduced stock risk. Advisors can assist in unwinding a large, single-stock position through strategies such as scheduled selling, charitable gifting or exchange funds to help reduce volatility without triggering unnecessary tax liability.
- ESG and values-based investing. If you want your investments to align with environmental or social values, a financial advisor can build a diversified portfolio centered on ESG criteria that still supports your performance goals.
Choosing the Right Financial Advisor for Investing
To find an advisor, you must be sure that a financial advisor will act in your best interest. Look for advisors with fiduciary duty, which means they are legally obligated to put your interests ahead of their own.
It is also important to understand their compensation structure. Fee-only advisors typically charge a flat rate or percentage of assets under management, while fee-based and commission-based advisors may earn money through product sales.
Be sure to also consider an advisor’s credentials. A Certified Financial Planner™ (CFP®) or Chartered Financial Analyst (CFA) designation indicates extensive training and expertise in investment management. This means they will be better qualified to manage your portfolio.
Before committing, there are certain questions to ask your financial advisor.
- How do you build and manage portfolios?
- What is your investment philosophy?
- How do you tailor recommendations to different clients?
- Do you offer tax planning or estate planning services?
Many advisors offer free consultations. Take time to interview several professionals so you can find the one whose approach, communication style and services best match your goals.
Bottom Line
A financial advisor for investing can play an important role in helping you build wealth, minimize taxes and stay committed to a long-term strategy. From creating a specific portfolio to guiding you through market turbulence or major life transitions, an advisor can offer both technical expertise and emotional support.
Financial Planning Tips
- How confident are you that your portfolio is positioned for today’s economy? A financial advisor can help you review your portfolio to see whether it aligns with current market conditions and your long-term goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to diversify your portfolio, here’s a roundup of 13 investments to consider.
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