What You Might be Assuming about Your Financial Advisor Versus the Reality

I am convinced that there are a lot of people who have invested their money with financial advisors that are operating under the wrong set of assumptions. Assumptions are dangerous. You can assume something for a long time and then realize that is was all wrong. Then you lost one of your greatest assets – time.

When the market is going up, these assumptions aren’t so dangerous. However, in a tough stock market environment like today, these assumptions are very detrimental to your long-term financial goals.

My advisor is watching my investments – Unfortunately, your advisor might be just watching your investments go down. Keeping an eye on the investments is not a management strategy. It is just something that an advisor might say to calm the nerves of clients.

My advisor has me properly diversified – Diversification is the difference between accounts that are losing money and those that are surviving the bear market. I looked at someone’s portfolio just the other day. They felt like they were properly diversified, or at least that is what they were told. The portfolio consisted of 12 mutual funds. There were a lot of funds. Unfortunately, the portfolio had no meaningful diversification. Roughly 88% was in stocks and 12% was in bonds. Not nearly enough diversification for this type of bear market. Diversification isn’t defined as number of investments. It is how your money is spread amongst many different types of assets.

My advisor is moving my money around – I see this often and it ends up being an unfortunate mistake for the client. The advisor calls the client and tells the client that changes need to be made in the portfolio. The advisor wants to sell one mutual fund and buy another. Unfortunately, the advisor is just selling one stock mutual fund and buying another, earning a commission in the process. It is nothing but a parallel move.

My advisor says not to worry the market is coming back – In bear markets, this might not be for a long time. I refer to this investment philosophy as the philosophy of hope. Hope is not a good investment. If risk is real high, you take less risk…not just stay invested in the HOPE that things are just going to come back.

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