Please note: this post is from a lifelong investor

Here is a recent headline in the August 2022 CBS Marketwatch:

‘I hope I don’t crash and burn.’ I recently hired my first financial planner, but in just seven months, they’ve lost $70K. What’s my move?

To answer your question regarding what’s your move? 

Nothing. 

You do nothing assuming the financial planner did a thorough review of your entire financial situation, implemented a financial strategy that aligns with your specific spending and savings goals, as well as ensure that your risk preferences are aligned with a diversified portfolio. 

The goal of this article is to get the reader to focus on the $70k loss and to somehow suggest that there is a move to be made due to a loss in the market that was completely out of the control of the financial planner and advisor.

Since we don’t know the dollar amount of the portfolio and the actual allocation, it is difficult to give a logical explanation of what this article is actually suggesting. 

Most Certified Financial Planner’s (CFP^Ⓡ) I have been fortunate to know and work with do a thorough financial plan regarding cash-flow planning, tax strategy planning and investment strategy. As CFP Matt Hyland states in the article, “[T]he financial planner is likely doing nothing wrong with your investments but they may need to do a better job educating you and if you let them know your concerns and desire for knowing whether you own sound investments, they can help educate you and hold your hand through the market decline.” 

Okay. I agree. 

Some Financial advisors can do a better job of communicating with investors to ensure they know exactly what is happening in regards to their financial plan and how the financial plan takes into account the potential volatility in the market and its impact on their portfolio. What investors are not prepared for is the hyperbole and prognostication of financial articles that portray the financial advisor at fault for stock market returns and the dismal state of the economy. 

If we lived in a world of unicorns and rivers flowing with Skittles and M&Ms, I would love to see a financial article that takes an objective and thorough look at market returns and puts those returns in their proper context. But, that is not the world we live in. The financial press is like some bloviating carnival barker that is seeking an audience to “come and take a look” at what we're yelling about…

The reality is the actual return of the market over the past seven months has been negative and all investors  who are in the market have probably experienced loss–no matter the financial plan or promised market beating strategy. Why? Because a financial plan cannot predict with accuracy the returns of the market but only give investors a historic probability of returns and the probability of upside gain with long-term investing.

When one looks at the Vanguard Total Stock Market ETF (VTI), you will see that the fund had a -13.97% return from January 1, 2022 to August 4, 2022. A $500,000 investment saw a loss of $69,827. This is close to the $70,000 loss mentioned in the MarketWatch article. 

 

So what is an investor to do? Ignore this article and most of all articles that are in the financial media. A winning strategy that can give the investor a psychological edge is to revisit the financial plan from their financial planner. 

Doing so, might help them from succumbing to the temptation to sell out and pivot to a different investment strategy and plan altogether. Listening to pundits and your gut will more than likely result in DALBAR type numbers. 

Dalbar QAIB Study 

The Dalbar Study: 30 Years of Average Equity Fund Investor vs. Indexes - 30 Years - (1/1/1992 - 12/31/2021) Average Equity Investor as determined by Dalbar | Study source: Dalbar QAIB 2022 study, Morningstar, Inc. | Past performance does not guarantee future results.

What is DALBAR and the QAIB Study?

Dalbar states: “[s]ince 1994, DALBAR's Quantitative Analysis of Investor Behavior (QAIB) has measured the effects of investor decisions to buy, sell and switch into and out of mutual funds over short and long-term timeframes. These effects are measured from the perspective of the investor and do not represent the performance of the investments themselves. The results consistently show that the average investor earns less – in many cases, much less – than mutual fund performance reports would suggest.

DALBAR’s aim is to help investors realize their behavior can result in lower returns and missed opportunities. The hope is that investors can experience investment success by staying the course and focused on their long-term goals. 

Conclusion

As we have written in previous posts, the financial media is not a good guide to follow for prudent investment and financial planning advice. Their aim is to get you to read and react–fear and uncertainty is the game. A good reminder is to realize that their information is merely entertainment and not to be taken too seriously when it comes to planning for your future. 

If you have any questions or need guidance regarding your financial plan and strategy, please feel free to contact us here.