To advise or not to advise NEWS UPDATE ON FINANCIAL STUFF Feb 5 2023

Now that many investor portfolios have been cut to ribbons, the phones are ringing with investors asking familiar questions like should they sell their stocks, buy more stocks or do nothing and just sit there.

My first question to anyone who calls is to ask the investor if they had protective stops in place (predetermined sell points) and sold some positions as the market fell, or did they instead follow the “buy and hold for the long term” crowd which possibly led them down the rat hole of devastating losses.

I am of the opinion that most people practice sound money management when playing a slot machine. Simply put, at a certain point they pick up their chips and walk away.

In my opinion, investors should practice a similar strategy with their investments. After all, your lifetime’s savings are much more important than the few hundred dollars you might forfeit at a one armed bandit.

I am always surprised at the number of advisors and investors who do not practice nor even consider having predetermined sell points to protect against severe market crashes.

Most professional traders I know who use their own money or manage large funds use stop loss strategies to protect against devastating losses. Just tune into CNBC sometime. You’ll eventually hear many of the big traders discuss principal protection as being tantamount to successful trading.

Why many professional advisors may not use stop loss strategies is a mystery to me. They stick to the old adage “hold for the long term” and just ride a market down to wherever it might end up and where it ends up might not be a very nice warm and fuzzy place.

Instead, it could be a place where one loses sleep, his sanity, his or her spouse as financial pressures mount along with a good portion of their lifesavings.

I can hear the familiar chant of “the markets always comes back” from the peanut gallery right about now and I doubt that this time around those words are providing much comfort to those that have lost a good portion of their retirement accounts in the 2022 sell off.

Although prolonged market crashes of this magnitude are rare, they do happen, and when they do, the ongoing damage to portfolios can take years to recover.

Consider this:  if buying and holding forever and a day is your long term strategy, why not consider sitting on one of the myriad of index funds available on the public market and fire your advisor?

Not that I recommend against using a financial advisor. After all, I am in the financial industry.

My point is if you know a little bit about the markets and trading stocks yourself but you’re strategy is to never sell, then why use an advisor?

For the most part, that may be pretty much their plan as well, so why pay someone to do what you can do yourself?

If you do decide to go it alone and hold for the long term no matter what, then the question becomes what index funds does one buy to wade through the thick and thin of the market’s boom or bust cycles?

I can’t answer that here for obvious reasons but there are plenty of resources out there to guide you through the selection process.

In my opinion, one of the best reasons to use an advisor is for providing some sort of principal protection. That means they should have a plan for exiting or at least reducing market exposure in downturns.

Although in recent decades investors and many younger advisors thought they had seen the pattern that markets always come back, this time around the crash of 2022, which may be continuing into 2023, has taught them a valuable lesson: Markets always come back until they don’t. And if they do always come back, the damage from a prolonged market hammering can be costly.

As in very costly.

Keep in mind, had an investor sold at least some stocks on the way down, there would be lots of cash to pick up some stocks as better prices materialized.

In conclusion, this article is probably not going make me a lot of new advisor friends.

But realizing that all financial advisors are supposed to be fiduciaries (have the investor’s best interest at heart over their own) I just had to at least put it out there right?

To find out if your advisor has a loss prevention strategy, just ask the question: “At what point will you sell me out or at least lighten up on my stocks in a market crash”?

In my opinion, their answer should be immediate, concise and definitive.

“Watching the markets so you don’t have to”

(end)

(As mentioned please use the below disclaimer exactly) THANKS   (Regulations)

This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, and California Insurance License #0L34249. His website is moneymanagementradio.com. , and was recently voted Best Financial Advisor in Nevada County. 530-559-1214.