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Are you paying a Financial Advisor to make sure your accounts never go down?

Are you paying a Financial Advisor to make sure your accounts never go down?

November 07, 2022

I have had two conversations recently that caused a light to go off in my head. One was with Diane, our Chief Operations Officer, on a conversation she had with a family member and the other was one I had with several folks. 

Diane was relaying to me that the family member was upset with the performance of their retirement accounts in this present bear market where the stock markets are down 25 to 30 percent. The family member was talking about their financial advisor, “What am I paying them for if my account is losing money?”

My conversations were to paraphrase two points: (1) “If I had taken all my money out of investments at the beginning of the year and just put it in cash, I wouldn’t be down X dollars. (2) “What should we do now? We obviously should have made moves a lot sooner.”

It really struck me that as a Financial Advisor, I need to continuously communicate to (1) manage what reasonable expectations should have when investing (2) what is the value that a financial advisor actually provides.

As my career has evolved and I have become more confident in the value that I personally provide to my clients and the value that Harford Financial Group provides to our clients, I know we can make a meaningful difference in our clients life in providing reliable retirement income and tax management through proven processes in an unpredictable world.

What I want to state clearly in this post and response to the comments that were made to Diane and to me: (1) There is no financial advisor, pundit, or person who can accurately predict 100% of time every market gyration and get you in to make gains and get you out to completely avoid volatility (losses). The markets move to quickly and are affected by too many factors. (2) The only way to avoid any volatility is to keep your money in cash (long-term we believe you do not want too much of your money to be in this because cash does not keep up with long-term inflation) and to use certain types of insurance products (life insurance and annuities) that are designed to avoid negative volatility (fixed, indexed, or fixed indexed). (3) The value of a financial advisor is to work to create a long-term plan that understands all these complexities to achieve your financial goals. For us, our best clients are focused on achieving reliable retirement income over their lives in tax efficient manner using processes and principles of good holistic planning espoused by the Certified Financial Planning Board. 

As I have communicated in other blogs, after the financial crisis and bear market of 2007-09, we at Harford Financial Group, spent years trying to find the perfect investment which we called tactical. The goal was to get the upside of the stocks but avoid the negative volatility. We searched high and low. Unfortunately, we never found the white whale. Every tactical investment had an algorithm or formula. However, none could 100% work. Reason, pure and simple is each correction (market down 10% or more) or bear market (20% or more) is different in exact cause, duration, and severity. The old quote history does not repeat itself but rhymes is so true. Factors are similar but no two are exactly alike. I think of it a lot like severe weather and particularly like hurricanes that affect the Gulf region.

The final thing I want to communicate is understanding the fallacy that we all can have in our thinking. The 2 comments that were made to me operates from the premise is that we knew in an advance what the outcome was going to be. It is the old hindsight is 20/20. Of course, as we end 2022, we know we went through severe bear market in both stocks and bonds. We know markets have been down. However, at the beginning of 2022, as we were coming out of the pandemic, it seemed that supply chains were opening up and concerns with inflation would be subsiding. Very few pundits in advance of 2022, were saying not only inflation would rise to persistently high levels at 9% but stay there for protracted amount of time forcing the Federal Reserve not only to raise interest rates but raise them quicker then they wanted to do so.

Said in another way, had anyone asked an investor to move all their stock and bond investments to cash at the beginning of the year, would we have done it considering we had come off of such good years and the world was opening up? This is why we believe in the concept of the bucket plan. Think of your money needs now, soon, and later. Now is for the next year, soon is two to ten years, and later is 10 years and beyond.

If one emotionally has difficulty dealing with the current market fluctuations, we do recommend considering more use of insurance products because the guarantees they can offer. For some folks this can be a suitable tool. 

No one in our opinion can accurately predict all the ups and downs of the market. We hope this helps you. I am an investor just like you and my own investing mindset and understanding has evolved. It is tough to see one’s accounts go down. However, we believe there is no better way to build up wealth then to invest in the best run companies not only in the country but the world through stock and bond investing. To me, it is like the weather. Living here in Maryland, if I want the flowers, trees, and grass and have good water tables, we need the rain. We need negative volatility if we want the long-term returns we get through investing in stocks and bonds.

As always, we are always here to talk and help you through good times and bad.