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Wall Street Steward Blog

Case Study: Fire Me

In the month of July, we had a very minor stock market pullback.  Nevertheless, it was enough to cause a bit of worry for conservative investors.  What I am about to describe actually happened, but of course, I changed the name to protect the innocent.

“Matt, I like how my account has done, but I was wondering if we should shift all of the money into cash?”

“Mr. Secada, that is almost never the correct move.  Have your financial conditions changed?  Do you still need this money to last for another 20+ years?”

“Nothing has changed, but I don’t like the way our country is going <insert Fox News blurb here>.  Can we put a lower limit on the portfolio so that my losses would be limited?”

“Yes sir…we can do that, but even then, there is no guarantee that your account will not fall below that amount.  What amount did you have in mind?”

“$175,000.”

“Sir, your account is only $178,000 now.  To place stops that tight is an exercise in futility, and you’d be better off moving the money now.  $178k to $175k can happen in a day, even as conservative as your account is.  As your steward, I would say that if your risk tolerance has evaporated to the point that you cannot sustain a -1.68% loss, you need to fire me, and move your money.”

“Huh?  Fire you?  Why?  My other advisor had no problem accomodating this type of request.”

“Well, in my opinion, he/she should be just as honest with you as I am being.  If a 1-2% swing in your account is going to scare you into cash, you should not work with an advisor at all.  Save your fees, and move your money into a guaranteed account at a bank/credit union.  Maybe he/she is not comfortable telling you to do that, but that is the right thing to do.”

“I have worked with dozens of advisors over the years, and nobody has ever recommended that I fire them.  That is gutsy.  I respect your opinion.”

This client listened to this advice and moved his account.  Honestly, I was bummed because I like this client and enjoyed working with him.  But, I had to be honest.  I believe that in business (and in life), you reap what you sow….and as fast as I lost this $178k client, another one came along.  Do the right thing, tell people the truth, and it all works out in the end.

Lesson:  if your risk tolerance is non existent, do not invest a penny….and better yet, do not pay an advisor…save your money.