Is a big loss a reason to ditch your financial planner?
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By ALISA WOLFSON
Question: I recently rolled my retirement pension and 401(k) into one account, managed by a financial planner. But in seven months, they seem to have lost $70,000 of my money. How do I know if they are making sound investments? This is all new to me and I feel like I’m taking my first baby steps. I hope I don’t crash and burn. Help! (Seek financial advicehuh? You can use this tool to match you with a financial advisor who can meet your needs here.)
Answer: First, you’ll want to share your concerns with your new financial planner and know this: “We’re in a bear market… What’s surprising is that your financial planner hasn’t contacted you to discuss the your portfolio allocation, what they are. doing to mitigate risk and its performance relative to appropriate benchmarks, such as the S&P 500 for stocks and the Bloomberg Aggregate US Bond Index,” says the planner certified financier Anthony Ogorek of Ogorek Wealth Management. Additionally, “they should have educated you about your investments and helped you plan your cash flow, plan your tax strategy, and understand each account’s expiration date,” says certified financial planner Kaleb Paddock from Ten Talents Financial Planning. If these things happen, it’s time to have a conversation, at the very least.
While it may not feel comforting, keep in mind that both the stock and bond markets to own declined in the first six months of 2022 to levels not seen in more than 40 years, according to Reuters. “The financial planner probably isn’t doing anything wrong with your investments, but they may need to do a better job of educating you and if you let them know your concerns and desire to know if you have sound investments, they can help you to educate you and hold your hand through the down market,” says Paddock. Adds certified financial planner Matt Hylland of Arnold and Mote Wealth Management: “You may have good long-term investments, but you’re seeing very significant declines so far this year,” says Hylland.
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Also, you should have taken a risk tolerance quiz and checked your planner’s stated risk tolerance against how the portfolio is allocated. “Brokerage statements should include ticker symbols for the positions taken. You can type the tickers into websites like Marketwatch to learn more about the funds you hold,” says Ogorek.
During the process of meeting and hiring your financial advisor, certified financial planner John Piershale of John Piershale Wealth Management says there should have been an investment presentation. “This is where the adviser explains the proposed investment portfolio, its level of risk and why it’s right for you,” says Piershale.
Depending on your specific asset allocation, you might see a slightly larger decline if you’ve expressed a willingness to take on more risk, or a smaller decline if you’re more conservatively invested, Hylland says. “A 60/40 portfolio, or one made up of 60% stocks and 40% bonds, is a very common retirement portfolio and is down about 15% so far this year,” says Hyland.
If the $70,000 loss represents roughly 15% of your previous account balance, you’re seeing declines that many other investors in standard asset allocations are experiencing now, Hylland says. “If that $70,000 loss represents a much bigger loss, say 25% or more, and you didn’t express a willingness to take on a lot of risk, that could be a sign that you need to talk to your financial planner about what investments ‘they’re doing. used and why,’ says Hylland.
Part of a financial planner’s job is to make sure their clients have investments that fit their risk tolerance. “There’s never one investment that’s right for everyone, so it’s important that you’re on the same page and that your accounts are managed in a way that’s right for your financial plan,” says Hylland. In short, do your research before you invest, and if all else fails, take your portfolio to another advisor for a second opinion.
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