Buy High! Sell Low! Huh?

I tried to tell my coworker to stay in the market when his 401(k) started dropping. Your losses are not realized until you sell.

The stock market is cyclical. If you are in the market for the long run, it will bounce back. Judging by past bull and bear markets, this will happen several more times before I retire. Instead of looking at my bottom line (which does stir my emotions) I try to focus on how many more shares I am buying.

I will worry about my bottom line when I get close to retirement.

Updegrave isn’t an expert. He’s one of the ones profiting from your ignorance. If “professional” financial advisers truly were experts, why wouldn’t they all be retired? When it comes to important things in your life, you educate yourself on those topics, right? Why would your money money be any different? Don’t rely on so-called “experts.” Their job is to intimidate you with their “knowledge” so you become dependent on them. You’re as capable as they are.

If the depth of the current credit/real estate problem was so obvious, why are so many hedge funds and banks owning exotic investments being hit so hard? Are they stupid? Hardly. There are just too many variables at play for anyone to know when and how the shoe will drop…

I am a fee only advisor and I believe I delver the most value by helping my clients avoid doing stupid things at just the wrong time.

Timing and/or forecasting the market is a seductive idea, but the vast majority of those who try…fail…

Its kind of like golf. If you can avoid the disaster hole, then you will likely score pretty well. Diversification, rebalancing, and discipline are a powerful trio…

the funny thing is that no one here really knows what a finacial advisor does. Beyond recommeding investments, he is there for evaluation of other finacial products. What legacy planning are you doing? Are you investing efficiently in terms of taxes? Estate planning? Chariable Giving? Life Insurace? Long term care insurance? All of these finacial concerns are things he helps with. Financial advisors are more than investment pickers. Even someone with a “market timing” strategy can benefit from having a financial advisor. Just because you are beating the SP 500 each year doesn’t mean you know anything about estates, trusts, insurance, income planning, etc. An advisor is there to help entire financial picture, not just help you produce 20% returns annually. I’m a licensed broker working with clients who have 1 million dollar portfolios or more. Some are very experience investors who do well timing the market and some just have well paying jobs. Both can benefit from an advisor in different ways. The first may not need investment guidance, but can use the planner to leverage lawyers for estae planning among other things whereas the second may want a more diversified mix of investments for the long term. The point is, I have never met anyone who couldn’t benefit from a relationship with a financial advisor!!!!

Some of these posts are really funny. Many people say stay out of the market until you see it moving, then jump back in. Isn’t that market timing? Then people say you can’t time the market because many studies have “proven” so. Where did you get these “studies”, from people who didn’t know how to do it properly? Mother Merril? Bear Stearns? You gotta be happy while you watch your portfolio shrink by 20% in 6 months, me? I was in cash laughing! http://www.profitable-investing.com

There are two types of people in the world. Those who don’t know what the market is going to do, and those who don’t know that they don’t know what the market is going to do. The latter (well represented in these comments) may get lucky once or twice - but *always* lose in the long run.

Buy and hold a diversified portfolio. Do anything else, and you might as well go to Vegas with your money - you’ll be taking much more risk for a lower return.

I agree with TS, Pennywise, Anonymous and Phil in Dallas.

To Rod G: it can never hurt to be as educated as possible regarding your investments, and ask any financial advisor alot of questions.
Remember it is your money and no one will be more concerned about keeping it than you.
To Anonymous: You said it perfectly. How many investors waited 8 years just to break even, or are waiting even still (from 1999)? It sounds so simple to the financial advisors who shout “buy and hold” but in the mean time all of us are getting older, and we can never regain those 8 years of waiting.
I agree with Walter’s statement near the bottom of his piece:
“It’s not enough at times like this for an adviser to say ‘hang in there and all will be well.’” The advisor should be ready however to tell his client the costs of waiting out his current portfolio, selling and going into cash etc. etc. and let the customer make an informed decision.
While a financial advisor may not be a fortune teller he or she should have enough financial intelligence to see a major financial downturn of this size coming and advise his clients accordingly. If he cannot do that then he should not be in the profession.

Stay invested in a downtrend - are you nuts! Can’t time the market? People who claim you can’t time the market should get out of the way of those that can. 2005 up 90%, 2006 up 60%, 2007 up 58%, 100% cash since Nov 1 2007, back in to capture this recent uptrend, up 14% so far. Can’t time the market? Only people who don’t want you to move your money will tell you that. DON’T GO TO THIS SITE, IT WILL MAKE YOU SICK ABOUT THE MONEY YOU ARE LOSING. http://www.profitable-investing.com

Hi folks - wow, the number of people who think they can time markets is astounding. Never mind that study after study shows practically no one does it well enough over time to beat comparable indexes. Diversify over many indexed market segments and good luck to any market timer beating that for long.

A globally diverse set of index funds are a lot like “Iceman” in the movie “Top Gun”. They never make a mistake, they wear you down, eventually you get bored, do something stupid and they get you. It happens to 80-90+ percent of professional money managers. So why are you so special as a market timer? This isn’t Lake Wobegon - and you probably aren’t so special.

TS hit it on the head.

#1 capital preservation

All else is 2nd to that.

In a down market, cash (or equivalents) is fine. And then (like now), you can slowly add it back in as the market gets moving. What’s wrong with buying near the low (now) rather than buying high and selling low?

I too like the double and triple digit annual returns and prefer not to be part of the sheeple that was referred to in another comment.

If you don’t care about your money, no one else will. If you don’t read to educate yourself on how to make above avg returns, perhaps you stick with the herd and their up and down years.

I chose to have only up years. It’s not that difficult to invest in the AAPL’s, POT’s, MOS’s, PCLN’s of the world. It just takes a little education.

And then refer above to rule #1. Capital preservation. Let the best of the best do their thing, but if/when they don’t do their thing and start to pull back more than you determine is acceptable (10-20%), then just go to cash and find your next horse to ride.

I also made some changes in my portfolio late last year. Shifted into more bonds, some out of my limited tech funds, etc. It significantly mitigated my downside thusfar through the recession and I am down only about 4%. Certainly, I am not economic or financial genius but come on, who could not see that there were some down times ahead and a major bubble in housing and credit? Predicting minor fluctuations is nearly impossible for almost all of us but major moves are not so difficult to foresee.

TS - 47% a year for 10 years is AMAZING! How do you do it? I have $100K that you can invest, under your managament it should be $4.7 Million in 10 years - you can keep half! Also I knew the first qtr of 2008 would be terrible (-10%). But what most people don’t know is that April will be great, the market is already up about 5% this month.

Mr. UPde grave,
I gave my Smith Barney Fiancial planner 20K. In 1999 in 2007 it was back up to $19K (very well diversified!). Just stay the course bailing is not the right thing to do. I did bail an am up 10K with SLV. Not the right thing to do for who?

Mike from Brazil - You hit the nail on the head. Too many canards out there disguised as “mantras”.
“you can’t time the market” ???? OK, so what do you mean by “buy low, sell high”???
“asset allocation”=reduced risk AND lower returns ….
“buy and hold” … if client buys that BS I can stick his file in back of cabinet … ask the boomers what they think of that “strategy”??? today.
AND the big houses need your money in “bond funds” so they can market their CDO’s and SIV’s.
I have been in the market since DOW 750 …. have studied money and PEOPLE … AND GUVMINT!!!
What is “true” today may not be true tomorrow.
DOW 10,000? If liberals win the next election! Tom-goin-fishin

friends :

if you are fortunate to be employed with a company who sponsors a 401k plan that is web based please learn how or get help being educated on how to use the program . this is very important whether you are ten ot thirty years from retirement . it doesn’t take a stock market guru or genius to build your retirement future. simply put SAVE your money . in a 401k this can be done without any exposure to the market . if you invest in your plans funds do so frugaly . in the end what will make the difference in whether you’ll have enough money to retire on is not how well or poorly the returns on your funds did , but how much money you have socked away .
i have managed my own portfolio from day one . this time 10 years ago due to being heavily in debt i had no money saved in a 401k , ira , checking , savings etc . as i paid off my debt i built my retirement with the money that was freed up . i did this till i was able to start maxing out my savings to my portfolio which i’ve done over the past 6 years . today i’m debt free and with more money coming in than going out i continue to max out my retirement savings . this is money that is my life savings i or no broker will gamble away. that’s money that will grow or if i choose will invest wisely in other funds like :
monsanto mon
berkshire hathaway brk.a or b
southern copper pcu
three of 5 funds that i manage in my ira . i use a discount brokerage firm and pay no maintanence fees . one of the surest ways to to retire comfortably is to save your money . if you choose to use a financial plan to invest outside your 401k that’s cool ; but remember your 401k is a savings plan provided for you through your employer . money saved in before taxes is taking advantage of free money on the table . please don’t pass up free money . your employer will match the first 3% of your savings . many people participating in a 401k plan are reluctant to max out their contributions if the employer matches no more than 3% . why not increase your contributions ; it’s your money ; pay yourself first ! i did and still am to the tune of almost 200,000 in my 401k alone . if i could do this by myself anyone can .

I sympathize with Rod G.

I noticed that the name of this column is “Ask the Expert.” I also noticed that in the column and the comments there are references to “financial advisors.”

If “experts” and “financial advisors” are not capable of regularly predicting the ups and downs of the market or are otherwise not capable or not responsible for giving sound financial advice, then they should not call themselves “experts” or “advisors.”

If they are merely Tarot card readers, voodoo doctors or sheep gut readers, then that is what they should call themselves. But if they are going to hold themselves out as “financial advisors” then Rod G. and others have the right to expect intelligent advice.

CC from Chicago; never in the article did Walter state buy and hold is the way to go. Read through the article again. He clearly states changes can be justified in light of market changes but not purely on emotion. It seems most of you posting here are more interested in hearing yourselves talk rather than read what Walter is trying to say objectively. I fear to think that people who can’t read straightforward and simple articles such as these are giving out “advice” to their clients.

I don’t know what the issue is here. Leave the “Advisors” out of the picture. Stop buying when the market is sky high. Buy now perhaps? My 401k is invested in 100% Global/International funds since January, I just checked now and it’s up 5%, in just one quarter. No bragging, just simply buy when nobody else is, dirt cheap. I’m 22 though so I’m not worried about volatility as much as most, and I’ll probably change my allocations eventually. But hey, this is the opportunity to buy buy buy that we haven’t seen in this stagnant market in years. Ditch the advisors, anybody can do it, it’s not rocket science to shop for discounts and avoid buying full price.

You folks are missing the boat. If you sell now (LOW) and buy back in later (HIGH)…then quite frankly you are investing foolishly and have no business being in the market… I am an advisor and always set the expectation that 2-3 years out of a ten year time frame we may be in the red. The goal is to “win” 70-80% of the time…not “time” what you “think” is going to happen. Are you correct 100% of the time in your career? 90% of our job is to talk emotional folks off of the cliff…

BTW; I wonder if all of those who “KNEW” the market was going to have a bumpy ride sold their houses in the “housing crisis”??? How many of you had Adjustable Rate “No Doc” loans??? Have you sold your SUV or car because of gas prices??? I hope you see the point. We as advisors DO CARE ABOUT YOU, your families, your children AND your goals. Our clients become our friends and we want you to succeed MORE Than making a trading commission. Good luck to you all!

Updegrave is wrong and anyone who buys into this buy and hold at all cost garbage is nothing but part of the “sheeple” group. Come on people, think about it. Why in the world would so many billions of dollars a year be spent on gathering economic data if it wasn’t useful? How could the Federal Reserve properly take corrective actions if they can’t do simple “trend analysis”. etc..etc..etc…

The reason buy and hold is promoted is because it makes it difficult for fund managers to maximize fund investments. Each fund is required to keep an x amount of dollars in cash for liquidation purposes. If people are buying and selling funds then the amount of working capital is decreased because the liquidation amount must be increased.

Maybe every market call I make isn’t the right one but experience has taught me to never be afraid of taking a profit, never be afraid to admit a mistake and there is significant value in capital preservation. In the end, I will take my average 47% (over the last 10 years) return over the buy and hold groups return any day. Market timing? BullshXX. It is called understanding economics and trend analysis. A practice ALL financial advisers should be required to know.

CC in Chicago has recently stated: “If what Walter says is true..who needs a financial advisor.” I agree totally with that sentiment. I agree with most of his/her comments .

Regarding the comments of Joe Stafura, again I agree with your concise and powerful comments.

Why in the beginning of this piece is Mr Updegrave defending this financial advisor with an arrogant tone? There was no need to write this way.

My 2 cents - Mr Updegrave’s advice is solid, but I do agree with many writers that it should have a caveat. Acting on ‘tips’ is not a strategy, it’s a guess. Who do you listen to? You can find experts with 20 different opinions. The only basis for action must be data you understand and can confirm. If you can’t do that, buy and hold is the only reasonable option, as Mr Updegrave suggests. You must understand it’s a long term strategy. I weathered the crash of 2000-2 in a buy and hold strategy, and still have a long term avg annual portfolio return of 9.9% (14 years, I calculated it, and then confirmed the results with my 401K provider annual portfolio return summaries, which provided an aggregate return calculation.) If you don’t have the patience, you should not be investing. Just go to Las Vegas, put your chips on red, and let ‘er rip. (No, really, please, don’t.) Now, I differ on the possibility of tactical asset allocation because… as Ken Fisher says… it’s possible to know something the market does not (and is thus not priced into asset valuations.) Occassionally you can benefit from this, even as an individual investor. Example, I dropped my REITs from 15% to 5% of my portfolio Feb 2007 - which I am the first to say had an element of luck in terms of timing, but there was knowledge too. Evidence was available that res. housing was about to have issues, but people did not want to believe it, and refused to price it in. Of course REITs dropped through the floor the next 4 months. I have a finance background, which helps a lot. I revised my bond allocation from 10% of my portfolio to about 30% last May. Pretty good timing? Lucky? Well, I was finding reports of real credit issues that the media ignored, and was able to confirm the reports, and that the scope of the issues were significant. I acted on it ahead of the press. I didn’t entirely bail on stocks, but I modified my portfolio to hedge against what I considered a greater likelihood than normal of a significant decline in equity valuations. Another good year. If I have no knowledge or insights, I simply return to my base asset allocation. Can this work? Well, after fees and expenses, I’m beating the S&P 500 by about 4 pts annually for the past 5 years. This actually is a concern to me - to get these kind of returns I am probably taking on too much risk and not realizing it, so I continue to try to learn about risk management, and I work hard to make sure my bets have limited downside exposure. Ken Fisher has a great long term record, and he’s right about 70% of the time… there are too many variables to hope for better. His goal is to beat the benchmark by about 2 pts over time. Along those lines, I took a couple bets that didn’t pan out - it’s going to happen - but enough small bets are succeeding to drive that little extra return I want. I can afford to lose these bets, but winning them will mean a really nice retirement, money-wise. I think part of the reason for the success so far is because I like this stuff. If you’re doing it because you ’should’… well, don’t! Index and rebalance and be done with it. You’ll do as well as 97% of the people out there. Making bets of this nature should not be a casual thing. If you try it with small investments 4 or 5 times and fail, then you’ve learned there is probably something wrong with how you are processing information w/r/t the markets, but it’s cheap if you limited your bets, you haven’t lost much in terms of returns. It’s ok, go 75% stock and 25% bonds, int’l and domestic, maybe a little reit and commodities (very little) and buy and hold. And when people talk about 20% returns, you can be sure the risk is really really high, and chances are that the calculations are wrong (I see a LOT of that). There’s a sucker born every minute, don’t be the next one. Capital preservation is the first rule of investing. Rule #2? See rule #1. If you can’t guage the risk, buy and hold.

Who here also “saw many signs” that Google would beat the street’s estimates today?? I am going to fire my adviser tomorrow and start listening to you guys.

Does Wal-Mart sell one of those crystal balls you guys use?

My view that the adviser was wrong was based not on “knowing” that 2007 was going to be a bad year or good year, Ben taught me better than that. My complaint is that it is the investor’s money and if he is nervous and would like to sleep better then that is his right.

The arrogance of advisors, including Walter who is an entertainer more than a financial experts leads them to over state the accuracy of their information. I left an adviser years ago realizing that lower fees and diversification were 90% of what we know increases investment, CS provides a nice low cost platform and fees are below 1% as they need to be in line with the value provided.

If what Walter says is true…who needs a financial advisor. You can buy no load balanced and indexed funds yourself and stay fully invested until you die. The trouble is the world is changing, the markets are much more global and diversified, and we’ve already had spectacular bull markets in equities and real estate in the U.S. Planners who concentrate on U.S. equities with a buy and hold strategy and minimal rebalancing at this point…while overlooking global trends in currency, commodity, and fixed income opportunities are not doing their jobs. Spotting trends and positioning for them is what true planning is all about and it’s the only real value added. That includes cutting allocation to all equities at times. You can call that timing if you like, good financial anaylsis or just common sense. Despite what Marty from Naperville says, I know a few planners out there who successfully do this and routinely beat the market. Most planners fail miserably at this however and probably should stick to selling insurance or annuities. Any buy and hold strategy that confuses portfolio theory with asset allocation can be deadly. One is concerned with limiting risks and the other is concerned with the always elusive Alpha. The pioneers of portfolio diversification were concerned with unsystematic risk and covariance within a limited “market” portfolio. Some of these assumptions when applied to a larger universe of assets and risks like constant liquidty, normal distributions and efficient markets have proven to be very costly mistakes however. Myron Scholes and Merton Miller were both part of LTCM’s team, and they held on to their “Nobel” theories until they got absolutely buried. The point is…asset allocation is not just a mechanical process, it’s a human process as well…and some people are just better at it than others.

To Mike…

“Thousands of small investors have been burnt by not listening to their own instincts when things turned - they listened to their “advisors”. ”

I’m sure this is true, but horrible incomplete logic. You fail to consider that millions of small time investors who actually flee the market when the news/outlook gets rough all based on their “gut”, have had far greater losses or opportunity losses than those in your example. This isn’t even arguable, its fact.
Every time the news turns dark… Black Monday, Savings and Loan failures, 1994, Russian currency devaluation (that was speculated to bring down the intl monetary system) and on and on, amatuers want to flee the market. So please, whatever you do, continue to do what you are doing. Everytime you nervous sorts liquidate your stocks for fear of short-term declines, professionals can buy them cheaply and make money.

As far as conflicts go, they exist in every facet of every industry, and when peole are given advice they don’t want to hear they assume the advisor is just lining his/her pockets. I’ve heard people accuse doctors of giving advice not to heal but to get patients hooked on medical needs. Why not? After all they get paid to treat, not to cure, and have families to feed and Porsches to drive. I highly suggest home cures.

Funny how some of these people were able to predict a downturn in the market. If you can predict when the market goes down, how do you know when to get back in? I think the average investor fails to realize that they shave about 4-6% annually when they try to time the market and miss the upswings. Take for example the Dow at 12000. It’s now at 12600. You’ve missed 5%. If the dow gets to 13000 and you come back in again, you’re just bait for the hedge funds and smart money to make the market go down. The bottom line is, if an investor that isn’t able to get in and out at the very second, they will always lose.

There’s a reason that 3% of the population holds the majority of the wealth and income in the US. Many of you who dont agree with Updegrave, probably are not in that 3%. Wealth is built over time with a consistent and disciplined approach(the Buffet Way) that ignores emotions and seeks opportunities. I’m buying as much as I can, of course I’m investing for many years from now as well, not for next week/month/year. I’ll stick with the minority, that 3% of the population seems to have it together.

Nice comments Walter, I feel you bring a sensible approach to these crazy people. I love reading posts on CNN because it is entertainment hearing how many irrational people there are in this world. I deal with individual investors all day, I have honestly came across 3 people out of hundreds that were actually “Beating the market” These people were able to beat the market by understanding 4 month swings are inconsequential in the big scheme. As far as Brad earnings have been coming out better and better and the Dow has leveled out as it always will. The Dow going to 0? There is a better chance the sun wont come up tomorrow. When you are broke half way through retirement due to getting 2% on your money in the bank or money market feel free to call an advisor they will help you, I promise. The market is down, institutions will buy and the market will be riding high and people like Brad and some of the others will be very proud they made some money without an advisor, all the while getting ready to ride the next downturn and start crying. Properly positioning youself using index funds and staying in the market will produce superior returns, how many times do people need to be told? People always want to make themselves feel better by only talking about the times they made the “Right call” or made a ton of money, they never talk about how many misses they have had. If you, Mr. Warren Buffet Jr. could have predicted this as John Paulson did your family would be 3.2 billion dollars richer and set for life. Let me know when your next omniprescent call comes and I will invest in your hedge fund, we’ll all make a fortune.

Mike in Brazil. Great comments! Very insight and funny. You are right that there some advisors that have a hard time doing the right thing for clients versus self preservation and the need to feed their families. I’ve always viewed this as a conflict of interest and I’ve been in the investment business for 13 years and have seen this first hand. I wish you luck in trying to call the bottom. I’ve heard the expression that someone is dangerous when they don’t konw what they don’t know. This applies to me. Too many variables to monitor which is why I’ve tried to focus on a manager or funds process rather than individual companies which may or may not be loaded with off balance sheet liabilities, or pension obligations. I wish you the best. Enjoy SP Brazil. Taking any BJJ?

I AM TAKEN BACK OF THE ARROGANCE OF WALTER RESPONDING TO THIS INVESTOR AND HIS FINANCIAL PLANNER.

I THINK ANYBODY WITH ANY COMMON SENSE KNOWS THIS IS A BAAD TIME TO BE IN THE MARKETS AND GOOD OLE CASH IN THE BANK IS GUARANTEED. YOU DON’T HAVE TO BE A FORTUNE TELLER.

WILL HE BE ONE WHO JUMPS OUT OF THE 80TH FLOOR OF HIS COMFORTABLE OFFICE AFTER HE HAS LOST HIS AND YOUR MONEY RIDING THE MARKET’S DOWN TO ZERO?

IT’S COMING. BETTER WISE UP NOW.

Oh, but I forgot. You saw “many signs” that 2008 was going to be a bad year. Please.

I have to take issue with this particular comment. I too saw signs the economy was heading for trouble back in late 2007. As such I pulled some of my more “liquid” (i.e. those not in my 401K or IRA) assets out of the market in November. And I couldn’t be happier.

While I don’t pretend to have a crystal ball I have to say there were plenty of signs the market was going to drop. You would have had to been a fool to not see it.

I agree with Updegrave. Well-said.

I too was a little taken by the tone of the advice. There are obviously bad and good financial “planners” out there and ultimately it is the client’s responsibility to ensure a good fit. I am a perfect example. Recently I tried financial “planning” and realized I really didn’t need a planner. We parted under good pretense but both of us acknowledged that I was astute enough in personal finance that a personal “planner” was over kill. What I really needed was a broker. Most yahoo finance goers probably actively participate in the art of personal finance. I track my entire life financial picture in Excel so I am completely opposite of Jane or John Doe that could care less about the market or whether Bernake cut the rate again today. Planners plan your financial life and assist people that don’t understand it.
“You have kids…oh you need a 529″
“Living Trust for that inheritance?”
“I think you need a little optional LTD plan to cover your 70% plan your employer has in force.”
“Annuity anyone?”
“How much money do you want to have for your retirment?”
“Your parents may need LTC”
Do a gut check with yourself. If you can handle these questions. You don’t need a “planner”. If you have cash to burn a good engine up top, you more than likely are trying to make money via a broker. In general, planners service the financially non-educated or the ones that are extremely brilliant and wealthy but choose to avoid that area of expertise. Buy and hold has worked for years (when America was the world Superpower) however the dynamics of the “global” economy are starting to become self evident. Ensure your retirment doesn’t simply rely on the US dollar. Get smart and get educated. Become your own “planner.” No one will care more about your money than you do. I too pulled out at 14000 on the DJIA. I saved thousands. As for getting back in, probably by August. Earnings look rough for now. Bernake is hesitant to cut rates again for fear of pushing crude up and the Euro higher against the dollar.

Thanks Walter. It’s nice to hear you defend an advisor doing the right thing for a change. Normally your column advocates index funds, says variable annuities fees are too high, etc. Cost is only relevant in the absence of value.

WOW ! Kudos for your straight talk !

To Bill, St Louis

Bill, yes I am sorry if my comment sounded arrogant. I did not mean it to come across that way.

I am obviously nervous about when the market will start turning again.

However I do have a major gripe about the conflict of interest in the financial industry.

Thousands of small investors have been burnt by not listening to their own instincts when things turned - they listened to their “advisors”. They may have lost a little to fees and being a bit on the wrong side of the curve but they surely could have been helped to protected their wealth a bit better.

The kind of advisors that give real advice are few and far between and for good reason they are dealing with bigger clients so we rely on the brokers of big investment houses to help us.

When will I switch to other funds - I am not sure. It depends if the current situation burns off the easy money crowd or not. It seems the market is and society in general is polluted with get rich quick types that are trying to create illusionary wealth or wealth at someone elses expense. At the end of the day for the market as a whole to grow much faster then GDP and inflation means someone else is always losing money. Another country, the innocent blue collar worker etc.

What we now know from the latest crisis is that the banking system and the financial parallel system have all reached the bottom end of the reserve rate game - The consequence is that the money system can no longer create wealth in itself. So the illusion of ever increasing growth will be blown out the water. Only hollow schemes can now do that.

Anyone on the outside of the industry investing in todays market is having to deal with all the games been played. It is due to these games that I need my advisor to advise.

How do you call the bottom. This time it may be a little easier in fact - it will be when personal credit debt stops climbing and there is in fact signs of it coming down. That is unless the rogues in the market convince the world that you can make your kidneys, heart or liver available as security against which you can borrow more - in which case we will have another ficticious boom which will blow up at some point in time.

I`m stretching things here again - sorry.

Yes advisors can advise and should. Unfortunately there are very few around who understand economics properly. Or when they do understand who don`t turn a blind eye to reality.

We are going through waves of false dawns. Enron - energy, Internet and Housing.

When the financial industry gets real and stops handing out extra-ordinary and unsustainable bonuses to hyped up pyramid scheme loving brokers I will then be able to leave my money in a spread portfolio until I retire without touching it.

Until then I will have to seek a REAL advisor or listen to my inner self.

Mike

As a registered Financial Professional I read your article with great interest.This has to be the only profession in which I must be right every single day. I must be able to forecast every market downturn as well as insure that clients never lose money. I contact my clients on a regular basis and while I believe in the long term, I know that everyone has different objectives and risk tolerance levels.People today have such unrealistic expectations about the stock market. It seems like clients want to capture every up cycle and avoid every down cycle. I recently lost a client who had been with me for 3 MONTHS. Those people have no idea what they are dong but they love having a scapegoat for their own incompetence. I now carefully screen prospective clients.I certainly don`t want to deal with people who have three month time horizons.

I agree w/ the comments of Jason and HG. I think Mr. Updegrave tends to spout traditional financial planning advice, and is perhaps less in tune to the anxiety of investors (much caused by 24 hour news sources w/ a drumbeat of negative stories). Perhaps fleeing the market is standardly bad, but selectively shaving profits or restructuring doesn’t seem like such a bad plan. Further, as much as advisors want to cite traditional advice and statistics, the global economy is fundamentally restructuring. The rules are changing and financial advisors need to change their traditional advice to meet the needs of a new era. Additionally, as traditional pensions, social security, and other long-term safety nets go out the window, clients and individual investors will get MORE anxious (quite reasonably) about the market as they soley rely on 401K plans for their golden years. Excessive market risk is not what these investors signed on for.

What never ceases to amaze me is when the expert gives the answer that is for all intents and purposes ‘correct’ - People always have to justify why they believe he is wrong.
Having been in the Financial advisory business for years and having given this same answer for years and having gotten the same range of response for years - I can tell you. He’s right.
I can also tell you that nearly all of the former clients that I have had that either did not believe this type of answer or were downright insulted at this type of answer and have gone out on their own…Have all blown themsleves up trying to do it on their own. Not a single one has done better on their own. There is a reason you hire an Advisor. For their advice. Also, remember advice is just that. Advice.

Wow. With so many “investors” out there screaming for professionals to outguess short-term swings in the market it is obvious why statistics overwhelming support that timers lose big. Have any of you really thought through your requests for prediction? I recommend educating yourselves before rationalizing your poor investment philosophies with such nonesensical “I have successfully outmanuevered the market” thinking.

One comment wrote something about an advisor needs to predict medium and long-term markets. They do. This is why they say don’t worry about the past 4 or 5 months, think long-term.

One comment was suggesting an advisor needed to constantly change the portfolio based on the latest data, then goes on to cite Buffett’s advice to index. What??? You’ve just used a contradiction to your belief as support???

Another person cites the fact that Buffett is constantly buying and selling. True, but not based on the minutia of day to day swings you are impying. Yes, the Oracle has had great results, but he’d be the first to tell you he loses sometimes. It wasn’t but a few years ago he had to send an apology letter to shareholders for poor performance. And to all you people claming a pro must constantly adapt to changing markets, wouldn’t you think then that a pro should have been properly buying tech stocks in the late 90s? Buffett didn’t. He stayed away and took a lot of heat for it.

For all you who have claimed to outthought this latest drop…please educate the rest of us. What is going to happen in the next several months? I’m dying to know.

No financial advisor or actively managed mutual fund can beat the market over time. There is almost no serious intellectual debate on the subject anymore.

Warren Buffet, the American Institute of CPAs, David Swenson (runs Yale’s endowment), Bill Sharpe (Nobel Laureate economist), Merton Miller (Nobel Laureate economist), Paul Samuelson (Nobel Laureate economist) Burton Malkiel (Economics Professor - Princeton University), Patrick Geddes (former Morningstar CFO), Jonathan Clements (Wall Street Journal) and many, many others recommend indexing for most individual investors.

Even if your financial advisor got you out, would he be able to get you in at the right time? Doubtful. And everytime you go in and out of the market, you incur transaction costs and TAXES that indexers like me avoid like the plague. Did you know that the average mutual fund loses 2% a year to taxes (your short-term and long-term capital gains tax) because of active trading? That is on top of the front end loads, 12b-1 fees, management fees and trading commissions they incur by actively trading your money. Buy a Vanguard Target Retirement Fund and you’ll do better than most investors who spend too much time (and money) trying to beat the market.

My two cents.

Updegrave is completely right. The S&P has done about 11.8% for the past 20 years. The average stock investor has done about 3.5%. Why is this? Because they think they can predict the future. If you don’t have a crystal ball, that 11.8% doesn’t sound so bad.

The core message from Updegrave was sound, although his tone obviously came across as defensive and antagonistic toward clients of financial planners. I have no idea why he seems so resentful of a benign question from a concerned non-professional investor. If you want your advice to be taken to heart, you should really form it in kind, concerned wording. You could have given the exact same advice without appearing beligerent.

There is an inherent problem with market timing. You need to know when to get out and you need to know when to get back in. Missing the ten best days of the market can erase the entire gains of a five year bull. For example: Peter Lynch’s signature Magellan fund averaged somewhere in the 14% return in the 80’s. Guess what? the average person who invested in his fund barely eked out any gains. The reason for this was the fact that they where trying to market time. They got in too late and got out too early.

If you want to try and market time
you might as well go to Vegas. At least at Vegas they might set you up with a free room and a couple of drinks!

I am sick of the buy and hold crowd. I sure didn’t see the 1987 crash coming, but the 2000 dot com crash was obvious to anyone who can spell “P/E”. This lastest drop was also predictable for anyone who read the news about subprime. The buy and hold argument is based on the average performance of stocks at 11% a year, which was mostly during a time when the average person was not invested in the stock market. Buffet doesn’t expect that kind of return in the future. We are in for a new, painful era.

To Mike in Brazil. Advisors do have good insight and the recommendation to trim back to a conservative portfolio is based on 60+ years of market data that show that a conservative portfolio with dividends and income reinvested has produced considerable wealth for individuals over time. I will caution you not to hurt your arm patting yourself on the back after one good call. What you are doing is yelling you’ve won the game in the bottom of the first inning. Enjoy your success but don’t get carried away (read up on behavioral finance - you need it). Market timing, which is exactly what you’re doing, is a historically volatile and punishing strategy strategy to follow. Want some real financial advice? Quit messing with your portfolio. Find someone you trust who will educate you and set you up with an asset allocation and managers/funds that make sense. Make regular contributions. Evaluate the strategy periodically and retire comfortably. You’re welcome.

Updegrave response proves the exact problem where people may claim themselves as financial planner by using canned response and foolish advice.
I have been very fortunate to be have an investment manager who educated me by explaining market cycles, and long term forecasts based on different market conditions. While many people may not want to be educated regarding the market as I was, at least he aided me.
I was able to move most of my assests out many funds at their peak and buy back in at various times. I have not lost money but make money during this down turn. That is what a planner enable his client to do; not some canned response of “buy and hold and the market will recover”.

Another example. When my planner recommended a fund many years ago, He educated me on the fund manager background and instructed me to remove all my money from the wfund hen the fund manager left. I followed his advice. I left $500 in the . The fund has never recovered (7 years now).

Your response did not attempt to aid , educate, or advise the writer to identify if his planner is a sub-par performer (which he appears to be).

Updegrave is right. The way to make money in investing is to set an ideal asset allocation, invest accordingly, and rebalance maybe once a year (if necessary). In the words of Warren Buffett, “Investing should be like watching paint dry.” If you want excitement, find a hobby.

I would have to disagree with both of the comments posted thus far. Although I do agree Mr. Updegrave’s response could have been more sincere, I also agree with most of what he told ROD G.

No one can predict the future; all you can do is make bets. Yes, you could have bet that the market would fall in 2008, and so far, you would have been correct. However, unless you know what types of investments will be most negatively-impacted (which you won’t), I don’t believe restructuring your portfolio is the correct course of action.

Can one of the brilliant people who predicted the bad start in ‘08 tell me exactly when the turnaround will begin? I highly doubt it. And in that case, transferring money to less risky investments will most likely cause you to miss out on that upswing. So, just as you probably would have gotten out of the market too late to avoid the downturn, you would probably join the bullish market too late as well.

This is why managers cannot change investment strategies simply on good or bad news, and this is why every investment manager will tell you that a strong, diversified portfolio should be your main goal. If you want to take big risks and try to time the market (something very few people can do), don’t expect your manager to make those decisions for you; you’ll have to dig your own grave.

NEWS FLASH! THE S&P 500 PRODUCED 0 RETURNS FOR INVESTORS OVER LAST 10 YEARS. NEWS FLASH! THE TOP HEDGE FUND MANAGER MADE OVER 20% RETURN FOR HIS CLIENTS OVER THIS LAST YEAR. NEWS FLASH! WARREN BUFFETS BERKSHIRE HATHAWAY IS ACQUIRING AND DROPPING STAKES IN COMPANIES CONSTANTLY - THAT IS WHY IT AVERAGES JUST AROUND 20% RETURN ANNUALLY SINCE INCEPTION. NEWS FLASH! THE ACCESS PROFESSIONAL FEE-BASED ADVISORS (CFPs) HAVE TO LONG/SHORT ETFs, INDEX AND ACTIVE FUNDS AS WELL AS “PROFESSIONAL MONEY MANAGERS” CREATES A GREAT DEAL FOR THE CONSUMER AT A CHARGE OF 1% PER YEAR - HEDGE FUND MANAGERS WOULD CHARGE 2% PER YEAR PLUS PARTICIPATION IN PROFITS OF UP TO 20% WHERE MOST OF THEM BARELY OUTPERFORM IF NOT UNDER PERFORM QUALITY MUTUAL FUNDS.

Folks need to understand that stocks and mutual funds go Up and Down. Unless you have a crystal ball, your guess is as good (or bad) as everyone elses as to where it will go int the short term.

The people who are worried about their portfolio shrinking obviously are not properly diversified or they shouldn’t be invested in stocks at all.

(I bet they weren’t worried about their accounts getting too big when the market was up)

If you like the prospect of making 2% a year in money market funds and then actually losing money due to inflation…then go for it.

If you’d like to take RISK and HOPE to reap higher returns over MANY years, then stocks / mutual funds may be your choice.

I’m not worried at all about short-term market fluctuations. When I get close to needing that money (retirement), I will have gradually changed my alloctions to more conservative investments as I approach retirement (starting 5 years out from retirement).

If you have a need to spend your invested money in less than 3 years, you may not want to select allocations that can substantially go down.

Selling your investments when they are down is a great way to lose money. If you needed to sell your investments, why didn’t you do so when the market was doing great??? One Word: GREED

Smart investors are BUYING stock mutual funds right now. Lower prices means you get more shares. When the market recovers, you will reap the rewards because you have that many more shares to appreciate in value.

Bottom Line: If you choose to own stock mutual funds, you accept the risk that they will go DOWN and UP in value.

A few years from now everyone will be talking about how much they are making in the stock market again. It is a cycle.

Remember the Phrase: Buy Low and Sell High?

Now is the time to buy low. When the market is flying high is the time to sell.

Most people don’t do that, however. Our brains are wired to run when we get scared, not buy more. And when the market is kicking butt, we get greedy and think…”why would I want to sell now when I’m making lots of money?”

Financial literacy should be required learning in High School and College. Make it a required Math Credit.

How can people be expected to handle money responsibly if we don’t teach them how?

Why so defensive Walter Updegrave? Your expert advise comes across poorly when you bash the people to whom you are providing “expert advice.”

Mr. Updegrave’s response was obtuse and condescending. The bottom line was that the client had a valid concern, and the advisor was wrong. Does Mr. Updegrave have any conflicts of interest regarding promoting the use of financial advisors? I hope that CNN will not censor this.

Robin, you completely misinterpreted Updegrave’s advice.

He says: Do not jump in and out of the market based on hunches and tips. Yes, some of the tips will be correct, but others will be wrong. Most people reading this column (and soliciting this advice) are NOT as financially literate as you, and would do well to follow this advice. A diversified portfolio will not earn you outsized returns, but that is not what investors should be seeking. If you know where the market is going short term, are you rich yet? Perhaps you should open a hedge fund.

Additionally, by citing Buffet’s advice of index investing, you unwittingly support Updegrave’s advice. It is not in the best interest of most “casual” investors to make investment allocation decisions based on where they think the market is going. Updegrave (whom you criticize) is giving the same advice that Buffet (whom you deify) gives.

The questions to ask of your adviser are spot on.

Sincerely,
Financial analyst and self-guided investor

To Robin about her “I had someone who I knew, who works in finance warn me of this impending meltdown in September 2007 so yes, predicting a major drop in the market CAN BE DONE, contrary to Mr Updegrave’s viewpoint” statement… Sure, and I bet this person has foreseen every dip and spike in the market since then, huh? And he/she is now the wealthiest person in the world, right? Yeah, didn’t think so. NO ONE can predict the market’s behavior with 100% certainty … if you try, you will win some and invariably lose some but there is no guarantee that your wins will outpace your losses.

I have been following Mr Updegrave’s column now for over a year. I’m close to retirement and read all I can to make sure I am on track. It seems to me that most of his advice is, at best, just common sense and information you can get from reading in general or anyone in that field. I have never seen anything by him that would explain his “expert” status. I find that the comments from his readers to have much more insight than the “expert” opinion he provides.
His advice seems more “popular” and superficial by comparison. If generating more discussion on reader questions is the goal here, then he is successful. If offering expert advice is the goal, then he is not.

I have suspected for a long time that Mr. Updegrave is a fake. Now, after reading his comments to Rex I am positive. He is an apologist for bad advisors.

I totally agree with Walter Updegrave, Investing on emotions is pointless and hindsight is always 20/20. If Rex has so much expert insight that he is able to “(see) many signs” then why does he have an adviser in the first place. It sounds like Rex just wants someone to blame for the downs in the market.

I’d recommend Rex read this article about Warren Buffett:
http://money.cnn.com/galleries/2008/fortune/0804/gallery.buffett.fortune/index.html

Darryl - yes and I just read an article this morning that said the NY Times had substantial predictions of recessions in post-crash 1987 and in 1998/1999. Guess what - both “recessions” were 3-4 years in the future and had little or no correlation to the stock market. Yes, there were signs this downturn was coming and in hindsight all the prognosticators look like geniuses. Since your crystal ball is so accurate, can you now please tell me when it will be a good time to get back IN the market. As a true fee-only financial advisor (flat annual retainer - no commissions or asset-based fees which I believe are the bane of the industry), Mr. Updegrave’s advice was on the money - pun intended!

Thanks, Walter.
Your column as always been a reliable indicator for me as I’ve profited nicely by doing exactly the opposite of what you advise.

Hmmm… I must be a fortune teller too, I got most of my 401k out of stock based mutual funds when the DOW was just above 14K, moved about 2/3rds of it into bonds which have had a small but positive result since then. The Subprime crash was written on the wall with big bold letters, I had been waiting for it for about 4 years, and when good old Ben dropped interest rates by half a point the first time, that was my trigger to get out. A Financial Planner is PAID to protect a clients investments and if he is not able to see major market changes like the subprime mess, maybe that Financial Planner should consider a new career path, perhaps flipping burgers! Any trained monkey can make money is a strong market, but there is still good money to be made in a weak one, and that is what a Financial Planner should be able to do for his clients.

I totally disagree with you Walter Updegrave. Of course Advisers should predict the meduim to long term trends in future markets for their long term clients. Otherwise they should be called historians.

The Premise that in the end the market always corrects is the big lie that the industry keeps telling the small investor. With personal knowledge based on the inability of my brother to sell his house in the USA starting in Jan 2007 (No one even wanted to view it - well priced and beautiful house in an area where rentals and purchse payments were already fairly close) - I analised the market as deeply as I could based on public information - I was staggered at the economic trends and where the indicators were pointing. My first thought was get conservative - move my fund to guaranteed interest payment investments, gold etc. I did this in early October 2007 when everyone was trying to hype the market up again.

I phoned my broker and he immediately gave me the company line. Wait it out … it always comes back. I said rubbish - I will not be the skape goat while the fund managers manage their internal company funds while leaving me to drown. Result - I am 10% up while the funds that I was in are 20% down and falling. I will return to some meduim risk growth funds when I see a real bottom.

I have noticed that every time there is a coming downturn the investment houses talk up the market while doing the opposite for themselves - even going as far as to short their investments against the very portfolios they hold in the little guys name.

It should be 100% illegal for companies that invest on your behalf to invest on their own behalf. We would get very different advice and very different patterns of wealth diversion.

It makes me sick that in the end its the little guy who trusts and works hard for 40 years that always gets stuffed.

You can tell me about the riches investors in the worlds who stick it out long term. I can also show you how they knew which portfolios to dump and switch at the right time in the right sectors.

Mike

Dear CNN:

I hope that my comments are published for other readers to see because I feel that my ideas may save other investors alot of frustration.
I was disappointed by the cold response of Mr Updegrave to Rex G. In Lexington Ohio. The sarcasm that is evident in his response was unwarranted.
First, it is quite possible that the so called financial advisor that Rex has hired is paid a percentage per year of Rex’s portfolio.. Not all advisors are paid on a commission basis. Therefore, Rex may have a very reasonable expectation of a more actively managed portfolio.
Second, I doubt that Rex expected his advisor to be a fortune teller and predict the future. What he probably did expect is someone to manage his portfolio and at least call him when the market goes south to either reassure him, or rebalance the portfolio so that Rex knew his advisor was alert and responsible.
I also feel it is an excellent point on the part of Rex that a portfolio be adjusted based on market conditions. The concept that if an individual only diversifies enough and does nothing else, they will be protected from market downfalls is a dangerous one indeed. I am sure many investors heard the mantra “diversify, diversify” and were encouraged to buy stocks in late 1999 and 2000 by their brokers and advisers, in the name of diversification, and then were told to “hold for the long term” while they watched major sections of the market go negative for 3 years in a row. Many of those stocks rated as “strong buy” by the brokerage houses in 1999 and 2000 still have yet to recover.
A wise financial advisor would have seen the turmoil potentially coming from the subprime mortgage meltdown back in 2007 and had a discussion with Rex regarding the potential effects on his portfolio. Rex could have then judged, IF his advisor charged commissions for each trade,or loads on mutual funds which are sold quickly, what would be more costly to him: to sell a few investments, or hold them while the market dropped.(I had someone who I knew, who works in finance warn me of this impending meltdown in September 2007 so yes, predicting a major drop in the market CAN BE DONE, contrary to Mr Updegrave’s viewpoint).
What Rex should realize and many other investors should realize is that mutual funds promoted by financial advisors typically have large fees going into the fund and often going out of the fund which greatly eat into the investors’ profits and of course many advisors charge ridiculous commissions to trade stocks.
The Oracle of Omaha himself, Warren Buffett was asked how should the average investor invest in the stock market? He advises that most investors should simply buy a low cost index fund that follows the S and P 500 since the fees that investors are charged in the long run really do eat into profits and most investors are not wise enough to beat the market. Various articles that I have read also indicate that the vast majority of mutual fund managers (80-90 % depending on which article you read) do not beat the S and P 500 even though they are paid large salaries to make a profit for their investors. So why should we pay high annual rates or fees to any financial manager?
Investors need to realize that no one will be more interested in preserving our money that we are, period.
I would suggest to your investors to become as self educated in the markets and investing as possible, read the wisdom of Warren Buffett, and read the Oxford Club newsletter. I have used the Oxford Club Newsletter for several years now and even if you do not buy any of their recommended stocks or other investments, the general ideas they put forth are excellent. I also recommend http://www.smartmoney.com for mutual fund assessment for those who do not want to stay with an index fund.There is no need to buy a mutual fund with a 4 or 5% fee (from a financial advisor) when there are good no load and low fee funds out there. I found a mutual fund for myself for example that has been positive 20 years in a row until 2002 when it went down 3 percent (it was positive in 2000 and 2001) and it charges a very low annual fee. Yes, it has stocks. Isn’t that the kind of money manager you want for your mutual fund or investments?
I am so much happier now investing for myself. I used to have a financial advisor in the past (no more!) and thanks to my own hard work, studying, and the Oxford Club letter, I have been able to turn down numerous offers from stockbrokers, financial advisors, etc. and save all of those fees.
Best of luck to you Rex G.

What a stupid response by Updegrave. Anyone with a triple digit IQ could see that 2008 was going to be bad. Updegrave must be obliviuos to what is happening to the US economy. Gee, your investments may be falling off a cliff but as long as you are well diversified be happy!