We are retired and recently lost $100k from our portfolio. Our advisor said ‘we could lose another $100k by 2023.’ Is that crazy?

Question: I retired in October 2016 and my wife retired in January 2018. We had a fair amount of money saved at the time, so we asked the finance guy to take over our account. us to help them grow. By January 2022 we have saved over $500,000 and we have not withdrawn any of this amount. Fast-forward to around October 2022, we watch the stock market act like a roller coaster and check our totals monthly and tick the ledger. We find our 401(k) fund has lost nearly $100,000 since the end of 2021.

I contacted the investment firm we use and they arranged a phone meeting with several investment advisors. All I want to know is why our retirement account lost almost 25% as I understand that since they have control over our investments it will be monitored and the investments will change to prevent this from happening. At the end of this meeting, one of the advisors commented that we could lose another $100,000 by 2023. Since the end of 2022, our retirement account has grown by about $9,000. Should we accept the loss and look to another investment company or continue with the current company? (Are you looking for a new financial advisor? This tool can connect you with an advisor who meets your needs.)

Reply: We’re sorry to hear that your account has been lost. See how your advisor handles the situation, whether the loss is on par with the performance in a tough market, and whether you should abandon your financial advisor. (Are you looking for a new financial advisor? This tool can connect you with an advisor who meets your needs.)

From what you’ve described, it sounds like your advisor may have approached your situation too casually (mentioning a $100,000 loss seems like a bad thing) and maybe lack of important communication skills. Indeed, Matt Bacon, certified financial planner at Carmichael Hill & Associates, says the advisor could have been “indecent and tactless or blasphemous,” which is “not great,” though He added that “empathy and tone are important, but so is honesty.”

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For his part, Robert Persichitte, certified financial planner at Delagify Financial, said: “I probably wouldn’t use the word ‘lose’ in a client meeting, I would rather emphasize that price account value could drop by $100,000 in the short term. .” But he added that he would “not hesitate to put a dollar figure down on a positive position” because SEC rules require you to disclose risk to clients, and “that helps the relationship.” better customer relationship”.

In short, your advisor has some communication issues, and that’s a pretty big deal. That said, certified financial planner Cristina Guglielmetti at Future Perfect says the 25% drop is roughly in line with last year’s market movements — that is, if you agree with your advisor. about how to handle the amount. Because you’re retired, some experts argue that your advisor should take a more conservative approach, or at least tell you that you’re heavily invested.

The key to success is that everyone, including investment advisors and their clients, has the same view of risks and goals. “In this case, the advice may or may not be good, but it is poorly communicated. “If you choose an aggressive investment strategy, these returns seem reasonable,” says Persichitte.

You also note that you think that because they control your investments, they won’t let losses happen. Ask yourself: “Is that your assumption or does your advisor indicate that this is possible? More importantly, what conversations have occurred between you and your advisor about proper asset allocation and your risk tolerance? “Did you indicate that you want a conservative approach and understand that you might be giving up long-term benefits in exchange for that stability?” Guglielmetti said. (Are you looking for a new financial advisor? This tool can connect you with an advisor who meets your needs.)

In short, a big problem to deal with is that it looks like your advisor hasn’t communicated effectively with you about the fact that your portfolio could be at this level of loss. Indeed, when it comes to managing investments, advisors have (at least) two jobs. First, they need to make an informed choice about an investment strategy. Second, they need to educate their clients about the possible outcomes of the strategy, including risks and benefits, Persichitte said.

It’s possible the allocation is too aggressive — so you’ll end up with heavy losses — and it might be worth consulting some other planners for expert opinion, says Bacon. theirs before switching advisors, Bacon said. Fortunately, you can do this with a free consultation as many advisors offer a free call or meeting. “The market has had a bad year, and bad performance alone is usually not worth a change of advisor, but the wrong fund or a reckless strategy towards a client’s goals can be,” Bacon said. as such.

If your advisor can’t adequately explain the benefits and risks of a strategy, Persichitte says it’s time to work with someone else. “New advisors can recommend the same investment strategy, but if they can explain the risks and get the client’s consent, then the client will be in a better position,” says Perischitte.

Meanwhile, certified financial planner James Daniel at Consulting Firm in Alpharetta, Georgia, says his recommendation is to have a sit-down meeting with your current advisors to get the hang of it. more about their approach. “Are they making investment decisions or is your portfolio part of an overall company model? Do they also have safeguards to limit withdrawals,” Daniel said.

You should also know this: you probably won’t lose at all, assuming your money is still invested. “You will only lose money if the investments in your account are sold for less than the original price. Use caution when selling any of your investments and avoid potential losses,” says certified financial planner Mark Humphries at Sentinel Financial Planning. (Are you looking for a new financial advisor? This tool can connect you with an advisor who meets your needs.)

For his part, certified financial planner Alonso Rodriguez Segarra at Advise Financial said 2022 is the seventh-worst year in terms of results since 1926 for the S&P 500. “Remember, in the stock market. stocks, you only lose when you sell, and you always win because stocks and bonds pay you dividends and interest. Don’t look too many times into your portfolio balance as that will stress you out and the market has shown that they will recover over time,” Segarra said.

If you decide to switch advisors, be clear about your expectations and understand the new advisor’s investment philosophy well to make sure you know what’s going on. “If both advisors had the same approach, the outcome would not have been very different,” says Guglielmetti.

Having problems with your financial advisor or looking to hire someone new? Email [email protected].

Questions edited for brevity and clarity.