I started the year with $3.85M but ‘have watched my accounts drop 20%.’ When I asked about it, I got ‘unsatisfactory’ answers from my financial adviser. That said, he ‘by and large has done well for me.’ What’s my move?

Do you have the right communication going on with your financial adviser.

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Question: I have watched my accounts drop 20% this year, which is better than the market, but starting in March and again in May, I traded messages with my broker asking what, if any change in direction/investments they had made/would make given market volatility and challenging economic times, as I can see very little movement in the large basket of stocks they hold in my accounts. I went through this some years ago and received similar unsatisfactory answers as well. (Looking for a financial adviser? You can use this tool to get matched with a financial adviser who might meet your needs here.)

By and large, they have done well for me, and I know every year can’t be a 15-20% up year.  That said, when the market turns south, is it required that they keep me in and ride the stock market down to wherever it lands? Or should there be a change in investment strategy and perhaps even going to some increased level of cash to take advantage of beaten down stocks? My accounts are almost always 98% invested with very little cash.  I started the year at $3,850,000 and am currently down 20%, which gets my attention. What do you recommend I do?

Answer: First up, the lack of quality communication between you and your broker is an issue – and could even be a reason to find someone who can and does explain what is happening with your accounts to you satisfactorily. Bobbi Rebell, author of Launching Financial Grownups and personal finance expert at Tally, says you and your financial adviser should have communicated about, and be on the same page, regarding your risk tolerance, timeline and goals. “It sounds like the conversation did not take place,” says Rebell. The sooner you’re able to be in touch with your broker and make sure they’re taking your risk tolerance, timeline and goals into account, the better. (Looking for a financial adviser? You can use this tool to get matched with a financial adviser who might meet your needs here.)

“The market timing question is a notoriously difficult operation, as it requires getting both the sell and the subsequent buy executed properly in periods of high volatility,” says wealth adviser Bruce Tyson at Morton Wealth. Adds Rebell: “Staying invested long term, in a diversified portfolio, even when the market goes down, has generally proved to be a solid strategy. Remember, the price of a stock or any investment only matters on the day you buy and the day you sell,” says Rebell. Indeed, while it may be tough to watch the value of your investments go down, it would be more painful to sell at the market low and then not be invested when the market moves higher. 

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Grace Yung, certified financial planner at Midtown Financial Group, says you may want to think of it like this: If being down 20% is uncomfortable for you, then being up 20% should also be uncomfortable as it is a flag that the portfolio can swing 20% in either direction, says Yung. “Statistics have proven that it is time in the market, not timing the market that helps investors be successful in investing over the long-term. The reason the market indexes outperform the average investor is because the average investor tries to time things by selling when the markets go down and buying back in later when the market goes back up,” says Yung. 

But that doesn’t mean that a broker doing nothing is the right move either. “Many people use market dips as a way to buy stocks at a lower price. Panic selling as the market goes down can be something you might regret, it can be tough to do but patience and perspective do pay off for investors,” says Rebell.  Adds Yung: If you have extra cash, now is a good time to add to quality investments to average a lower cost. “There is a sale going on. This is the only industry where people run away from sales. If you’re a fan of golf and Callaway announced a 20% sale on all their clubs, most folks would line up to take advantage of the sale. Why don’t we do the same for stocks? We should,” says Yung.

Think about taxes too, says Yung says. If you’re in a non-retirement or taxable account, you could use this opportunity to reposition and book losses to pair against future gains as a tax-efficient strategy. “Managing investments from the tax perspective is what a savvy investor should consider in times like these,” says Yung.

Ask yourself too if your portfolio is currently invested how it should be, and what exactly is your broker doing?  If this money is going to be utilized for traditional goals like home renovation, retirement income, funding college tuition and paying for kids’ weddings, Tyson says this 98% allocation to stocks is too high, particularly if the investor is in the vicinity of retirement age. “A portfolio’s equity allocation should be limited to the percentage that the investor can emotionally live with, given that significant market corrections are an increasingly common occurrence. With a portfolio in excess of $3 million, it could be balanced out with less volatile alternate forms of investments through his or her adviser that go beyond the stocks and bonds to which retail investors are mostly limited,” says Tyson. But, he adds that if this is excess capital that is being accumulated to be passed on to the next generation, then there is a reasonable rationale for the current strategy.

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*Questions edited for brevity and clarity.

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