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A CPA Explains How to Fire Your Financial Planner

By Stephen Nelson

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Published: 24Aug2008
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Have you gotten tired yet of paying the five, ten or twenty thousand dollars a year that you're currently paying your financial planner?

You should think about taking a do-it-yourself approach to financial planning. By following a handful of steps, you can actually plan and manage your personal finances yourself. And as long as you're thoughtful and careful, the job you do will beat the performance of about 99% of financial planners and registered investment advisors.

Seriously, firing your financial planner is easier than you think. You simply need to follow five steps:

Step #1: Learn to Invest Passively Using Index Funds

The first step in firing your financial planner or investment advisor is learning how and why passive investing works--and then committing to using passive investing as the foundation of your wealth-building.

If you don't use a financial planner or investment advisor to pick your investments or make investment recommendations, you'll need to come up with your investments. And passive investing provides an easy, powerful way to do this.

In a nutshell, with passive investing, you don't try to pick the best investments. Rather, you buy all the possible investments. And, the weird thing is, you actually do better using passive investing because the cost of making bad investment choices is less than the fees a financial planner charges.

You can begin your research into passive investing by reading about index funds on various investment web sites. But you should also take the time to read one or both of a couple of books, The Random Walk Guide To Investing by Burton G. Malkiel, an economics professor at Princeton University and The Little Book of Common Sense Investing by John Bogle, the founder of the Vanguard Group, a mutual fund company powerhouse.

Step #2: Get Serious About Retirement Saving

After you learn how passive investing works--and why you'll always use an index fund if you have the choice--you need to get serious about your retirement saving.

Specifically, if you work someplace where your employer provides a 401(k) or similar retirement savings option, you need to participate. At a minimum, you want to participate at a level that means you get any "free matching money" the employer provides. And if you can save more money, even better.

If you work someplace where your employer doesn't provide something like a 401(k), you need to use (and ideally maximize contributions to) an individual retirement account.

Almost always, people who use 401(k)s and individual retirement accounts to invest in a small handful of index funds build wealth much faster and with much less risk than people who use financial planners.

Step #3: Play Worst-case Scenario with your Finances

Here's a third step you should take. Grab a pencil and pad of paper and list your family's financial worst-case scenarios. You're going to include scenarios like "loss of income due to death of the breadwinner," "catastrophic medical expenses," "disability of breadwinner," and so forth.

To the extent that it's practical, you want to buy cheap insurance to mitigate these worst-case scenario risks. For example, you want to buy cheap renewable term life insurance for the family's breadwinner(s). You want to buy major medical insurance for family members. And, if possible, you want to acquire long-term disability for the family's breadwinner(s).

Cheap insurance--which insurance agents often don't like to sell--provides an effective way to minimize your biggest financial risks.

Step #4: Keep Your Finances Simple

A fourth quick step: Work to keep your financial affairs simple. Don't put money into complicated investments. Don't buy complex financial products. Don't let your finances get disorganized.

Complexity doesn't save you money. Complexity costs money. Furthermore, complexity leads to mistakes.

Step #5: Make Sure You'll Pay Off Your Mortgage Before Retirement

A fifth final tip or step: Make sure you'll have your mortgage fully repaid before you retire--and preferably well before you retire.

Related to this point, if you receive a windfall--perhaps an inheritance or an unusually large bonus from an employer--use part of the after-tax proceeds to accelerate your mortgage pay down.

Paying off your mortgage well before retirement should mean that you're in good shape to retire when the time comes. And "siphoning off" a portion of any windfalls for accelerated mortgage repayment will mean that at least some part of any financial windfalls you receive get used for wealth-building.

Seattle CPA Stephen L. Nelson is a former registered investment advisor in the state of Washington and holds an MBA in finance from the University of Washington and an MS in taxation from Golden Gate University. He gives away free financial planning tools from his web site at and also edits the do-it-yourself limited liability company web site.

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