Financial Advisors Are Supposed To Be Smart, Right?
- Jan 9, 2017
- 2 min read
Each month, Financial Planning Magazine publishes the results of their ongoing Global Asset Allocation Tracker. The tracker is a summary of the recent investment decisions of hundreds of randomly surveyed financial advisors across the county.
Advisors voluntarily report their allocations to US stocks, International stocks, US bonds, and Non-US bonds based on what they're doing in their client's accounts. Responses are categorized and averaged, then the tracker reports on changes compared to previous months.
The goal is to give financial advisors a sense of the investment decisions their peers are making so that they may identify trends or adjust their own strategies.
Over the holidays, I happened to check out the December tracker during some down time. The tracker's survey was conducted just before the presidential election (November 8th, 2016). In this edition, allocations to US stocks "dropped to record lows" as advisors pulled back on stocks. Here are two other notable advisor quotes from the report that caught my attention.
Put asset investments on hold until election results are in and analyzed.
Although international markets have been lagging in recent years, we see them as a great buying opportunity amid the stale growth of the US markets.
If an advisor acted on this information and reduced domestic stock allocations, here's what they would've missed out on for their clients.
US Small Caps (12.5%), US Mid Caps (9.4%), US Large Caps (5.6%), International Stocks (3.8%)
For those advisors that shifted away from stocks or advised clients to get out altogether, I feel sorry for you. I feel even worse for your clients. I also don't understand how almost 8% growth in US stocks up to the election represents "stale" growth this year? Maybe this quoted advisor is so good they regularly deliver 14% returns to clients each year.
Probably not, unless their last name is Madoff.
Up until November 9th, 2016, US stocks as measured by the Vanguard Total US Stock Market ETF (VTI), returned 7.9%. However, if you include all of 2016 that return jumps to 12.8%. The tactic of Selling To Cash For A Presidential Election Is Dumb, and this time it robbed investors of an extra 4.9% return!
You're probably sick of me saying it's nearly impossible to engage in market timing to outperform. Well, hear it again... This probably won't be the last time, either.
As I finished reading the tracker report, I lost a little more confidence in the financial advising community. Financial advisors should invest according to principles like diversification, risk management, and low costs. However, there is only one word to describe advisors who claim to know what's coming next.
Stupid
Rather than trying to be right and compromising clients savings, isn't it better to let the markets work for you?
Advisors and investors should stick with the Asset Allocation they already have in place (unless it sucks, then call me). Don't mess with the percentage you own in US stocks vs. non US stocks vs. bonds based on what you think will happen, even if it violates your bias. Assuming you've adequately pegged your risk capacity to an appropriate percentage of bonds, leaving your portfolio design alone despite world events is the best way to invest like a champ instead of a sucker.
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