24/7 Insights

• • This Redditor’s company just got acquired, which means a pay raise. 
  • The outstanding question is whether he needs a financial planner. 
  • He has a net worth of around $800,000 and growing. 

Regardless of your net worth, managing your money is something that everyone should learn how to do. However, when you get to a certain point where your money starts to grow, it begs the question of what to do next. For many people, it’s as easy as making investments, but the question is, what investments should you make? 

This is where a financial advisor traditionally would come into play. However, in the case of this Redditor in the r/fatFIRE subreddit, their annual income is about to make a big leap. Unlike most people who fear being laid off, this Redditor’s company is getting acquired and will boost his income significantly. 

What I like about this story is that it addresses an age-old question: Who should I talk to? There’s a place for financial advisors and tax consultants, but in this case, our Redditor wonders if he only needs one. 

The Scenario

In this specific scenario, we have a 30-year-old who works in the tech industry. He’s just learned that his company is getting acquired, and the resulting merger will considerably increase his compensation. When his new compensation is set, he’s estimated to make around $350,000 in salary, plus another $500,000 per year in RSUs or Restricted Stock Units. This gives him a total annual income between $850,000 and $900,000. 

At the time of this writing, his net worth was around $800,000, split between investment property, stocks, and cash. This is where his question about whether he needs a financial advisor to help him manage his next steps surfaces. He believes he understands 401Ks, ESPP, Roth IRAs, etc., but wants to diversify his portfolio. 

Separately, he also wonders if hiring a tax consultant won’t help him because he knows how to locate tax loopholes, deferred compensation, etc. 

The Recommendation 

It’s important to know that I am not a financial advisor, so this isn’t financial advice for this Redditor. Instead, I think we have a scenario here of someone who may understand the basics but certainly doesn’t know the tax code or the nuances of financial investing. You can read a lot online, but it doesn’t make you an expert. My reading on this situation is twofold. The first is that hiring a tax consultant will be helpful with all of the investment strategies. Our Redditor may understand how to handle W-2 income filings, but I don’t know if he understands the different write-offs he can take with his portfolio. This is something a tax consultant would be able to assist with. 

Hiring a financial planner will be useful as he gets more money, but I don’t think it’s necessary now. The tax consultant is far more necessary as he enters the highest tax bracket available and looks for any edge. This Redditor is far more likely to succeed independently regarding investments but less so in understanding tax law. As his net worth approaches multi-millions, it might be time to consider hiring a financial planner, but until then, a tax consultant will save time and money.

All this said, hiring a financial advisor can have some benefits, like creating a plan specific to his needs and helping ensure a legacy is established for future generations. Financial advisors also specialize in helping to make the most of retirement planning, so there are some benefits. 

The Takeaway 

While we might be a little jealous of this Redditor’s position, as he seems to be one of the few seeing his income going up instead of down, I think he has a good head on his shoulders and knows his next steps regarding investment strategies. So long as he isn’t trying to get too aggressive, he should be good on his own. 

The reality is that far too many people try to make sense of tax law and end up in big trouble. We’ve seen this from celebrities to our neighbors, and it rarely ends well. The worst thing that can happen with a financial advisor is losing money. The worst things that can happen without understanding tax law are hefty fines, jail time, and things you want to avoid. 

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