Do savvy investors need a financial advisor?

If you are capable of learning investment processes and evaluating investment assets and portfolios, do you still need to hire a financial advisor?

Maybe you do; maybe you don’t. That’s a decision only you can make. But I’ll show you a reason why I have been retaining my advisor for over 3 years now.

Back in 2022, my advisor had recommended me a portfolio with 20% allocation to bonds and 10% allocation to gold. I insisted that I’d not invest in gold. He agreed to change the recommendation to have 30% allocation to bonds instead (and 0% to gold).

2 years later, in 2024, I started researching different portfolio combinations. This is when I discovered that gold was a great ingredient to have in long-term portfolios. In September 2024, I wrote the following email to my advisor, asking him if I should allocate 20% of my portfolio to gold.

Email I wrote to my financial advisor; click to enlarge

I was vehemently against gold when my advisor had recommended gold. But now I was taking a U turn and asking if I should add gold to my portfolio.

This was his response:

Email reply from my advisor; click to enlarge

Eventually, I agreed to keep the gold allocation to 10%. Basically, I accepted the portfolio that he had originally recommended to me.

• • •

So, why do I need an advisor? To keep me grounded and stable when I am being blown away by something new I have learnt. Some investors can find such a balance naturally; for them, an advisor may not be needed (or they may need an advisor for a different purpose). I, however, need an advisor to keep me safe from myself. 🙂

My stance on gold: learning from the pros

I used to have no opinion about gold as an investment asset. Then I came across this Warren Buffett quote:

[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.

Thinking more, I came to the decision that investing in gold was a bad idea. I wrote 2 different blog posts declaring that gold was a bad investment (post 1 and post 2). Many months later, I hired a financial advisor, who recommended that I allocate 10% of my portfolio to gold. I told him that I wouldn’t hold gold, and I stood my ground.

A couple of years pass, and I discover the idea that the portfolio as a whole is more important than the individual components in the portfolio. I warmed up to the idea of having an allocation to gold, and I compared gold to spices such as bay leaf or star anise that are added to biryani. No one eats bay leaves on their own, but we all want bay leaves in our biryanis.

Image source: pickpik.com

I still didn’t like gold, but I was willing to add it to my portfolio because of what it brings to the table. I was still hesitant because gold is a speculative, non-productive asset. Then I came across the most complete write-up on gold I have ever seen: this is the memo that fund manager Howard Marks wrote to his clients in 2010, named All That Glitters.

I already knew that Howard Marks was not a fan of investing in gold, so I was expecting to see arguments against gold. I was also a bit nervous because if I am convinced by Howard Marks’ arguments, I may have to change my stance on gold once again. But that memo blew my mind. It was as rigorously seeking truth as an unbiased academic research paper would. Strangely, I am more at peace holding gold after reading the memo. (Confirmation bias, maybe?)

Here are the key points that I took from the memo:

• To profit from an investment, the question of intrinsic value may not be fully important. As long as we have other investors willing to buy the asset from us, we can make a profit.
• We call bonds and shares productive assets because they produce cash flow. But what is that cash? Cash is the fiat currency of some country. Do fiat currencies have intrinsic value? They don’t. They have value only because everyone agrees that they are valuable. Then how is gold different?
• Howard Marks’ investment framework requires knowing the intrinsic value of an asset and then buying it at a bargain price. For gold, no one knows what the intrinsic value is. Hence, Howard Marks cannot buy gold using his prudent methodology.

Gold is not compatible with Howard Marks’ strategy, but my investment strategy is a lot more passive, and I don’t usually care about valuations. That means I can buy gold according to my portfolio allocation without worrying about overpaying for it. (If I overpay, I’ll correct that mistake when I rebalance the portfolio next time.)

I still worry about a technological advancement making gold abundantly available and hence crashing its price. But I have grown a lot more comfortable giving allocation to gold in my portfolio.

Great work is a great energizer

We often see people who act with an incredible amount of energy while we struggle to even wake up in the morning.

Many of us would also have noticed that we are filled with energy at times, but we can’t muster any energy at other times.

I have wondered why, and I think I have an answer now. Maybe not the answer, but an answer.

When we do great work, it’s easy to find the energy needed to do it. If the work that awaits us—and the things that we can accomplish—are of great importance and interest to us, it’s easy to wake up early and start the day with a smile. When we expect the day to be dull, it becomes mysteriously hard to get up and move.

Great work is a great energizer.

Don’t buy a cake for the cherry on it

This is an analogy I learnt from my manager at work. It aptly fits investing to save tax.

We should choose investment assets based on the merit of the assets. If the investment also comes with tax benefits, then that’s an added plus. If the investment asset is a cake, tax benefits are the cherry on that cake.

Only buy the cake that you want to eat. Enjoy the cherry if the cake comes with a cherry. But don’t buy a less than delicious cake only to get a cherry.

Picture by phiraphon srithakae from Pexels

To invest is to go out on a limb

Investing is an act carried out mostly in faith. We can look at hundreds of different data points or read dozens of books and research papers. But none of that—literally none of that—can guarantee anything about the future.

Any asset we pick, any strategy we pick—there will be a dozen arguments supporting them and a dozen opposing them. Which arguments should we accept and which ones should we ignore?

We have to go out on a limb and make our bets. We may get the returns we wanted, or we may not. The risks we took great care to avoid may play out, or they may not. If the risks play out, we get to feel smart; if they don’t, we get to look like fools for not getting on the bandwagon.

Investing is a humbling exercise. It shows us how powerless we are. It’s also an empowering exercise. It forces us to march on even when the path is dark and our legs trembling.

Picture by Caio Triana from Negative Space