We Need to Talk: 4 Qs to Ask Your Advisor to be Sure You’re Prepared

“It’s not about predicting, it’s about preparing. “

– Daniel Taylor |

We Need to Talk (What to Ask Your Advisor)

In the current environment, I’ve found that many investors are concerned about what could happen to their investments in a falling market (and rightly so).  But, you shouldn’t have to just ride out the next grinding down market and wait for it to recover to make a decent return.  That’s not a plan.

To be sure you’re prepared, you should have a conversation with your advisor (human and/or robo), and ask for some info about your portfolio. If you manage your own investments, be sure you answer these questions for yourself.

Note: When considering your advisor’s advice, keep this in mind: the are many advisors and money managers in very senior positions at this point, with a decade of experience, who have never seen a bear market (since the last one was ten years ago).

Also, many advisors have a limited playbook – they may be offering only the “traditional” advice because that’s what they learned and that’s all they know, and many can only offer you products from their parent company’s preferred list. That can provide a good foundation, but may not best prepare you for the next downturn.

You need to be sure you’re ready for whatever comes next…

Here’s what to ask:

1. What are you invested in? – This seems obvious, but often it’s not. I’m still amazed at how often people tell me, “Yeah, I have an advisor that I work with.” “What do they have you in?” “Oh, I’m not sure.” Wait, what?

I mean, I get it. – if you have an advisor, then you rightly expect them to be professional, know what they’re doing and be looking out for your best interest. But, at the very least, you should still know what you’re invested in and why.

2. What is their plan for a bear market, if any? – Ask them, “What is your plan for my investments if we have another 2000 or 2008-like bear market?” Will they diversify? Hedge the portfolio? Sell some and go into cash? And how will they know when to implement that defensive stance?

They may tell you not to worry – that the economy and markets are still OK now. Tell them that sounds great and you hope they’re right, but you’d still like to know what the plan is if and when the market starts to turn. (First off, they don’t know for certain – the “experts” have historically been optimistic at exactly the wrong time. And secondly, you need to have a plan because another bear market is like a large asteroid hitting the earth – the likelihood of it happening on any given day is small, but the probability of it happening again is 100%.)

3. How would your current portfolio (from Step 1) and their plan for a bear market (from Step 2) have performed in previous bear markets? – Your advisor will probably not like, or might outright balk, at this request. Yes, market and economic conditions are always changing and aren’t exactly the same as they were in the past, but it’s important to get at least an idea of how you might do in bear market conditions.  As Mark Twain is often (questionably) credited having said, “history doesn’t repeat itself, but it rhymes.”

If this is a non-starter for your advisor (or your robo-advisor doesn’t offer this level of personalized service), you can do it yourself pretty easily. Just get the monthly historical prices for your holdings (Yahoo! finance has historical prices on many securities), properly weighted the same as your investments, and see how your portfolio would have performed in the two most recent bear markets: 2000 to 2003 and mid-2007 to mid-2009. This will give you a idea of how you can expect things to perform in the next bear market.

Or for a rough estimate, you can use PortfolioVisualizer.com’s Backtest Portfolio Asset Allocation tool. Simply choose the asset classes in which you’re invested and the approximate percentages, and it will give you details on you how your current portfolio would have performed in the past – and this can give an idea of how prepared you are for the next downturn.

4. If you don’t like what you find, look for a better plan. – When it comes down to it, your investments are ultimately your responsibility. Do whatever it takes to be sure you’re prepared and comfortable with your investments and the advice your paying for.

Ask your advisor what else you can do to prepare for a downturn. Educate yourself.  Or maybe look for a different advisor. Find a plan that can help preserve your investments, but still enables you to profit if markets continue to rise.

Going through this process will give you confidence in your current portfolio and an understanding of its possible performance in a down market; or you’ll find where your plan is lacking (or that you didn’t have one at all). Once you have this information, you can address any gaps and have real peace of mind regardless of what’s next in the markets or economy.

One more note: People are sometimes hesitant to have this sort of conversation with their advisor because they’ve been with them for a while and even consider them a friend (which is the way it should be).  But remember, you’re paying them every month, and if they’re a good advisor, one of their top priorities should be making sure you’re knowledgeable and comfortable with what you’re invested in.

This quick exercise should be easy for them to pull together and it can really help address your legitimate concerns about what could happen to your investments when the next down market hits.

 


If you’re still looking for a strategy that is designed for up and down markets, at Taylor Morgan our full, proprietary investment approach does just that:

  • We assess 61 assets classes and sub-classes all over the world for the best opportunities.
  • Our defensive algorithms monitor every position to protect profits and avoid losses – we are sometimes 100% in cash when conditions warrant.
  • Our quantitative futures component can make money in up or down markets.

If you’re interested in the possibility of avoiding the worst of a coming bear market and even the possibility of profiting during challenging times, we’d love discuss our investing approach and see if it’s a fit. 

Please leave a comment, question, or get in touch.  We’re here to help.

WANT STRONGER DEFENSE
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sleep soundly during the coming bear market
and still take advantage of profitable opportunities.

If you want to learn about our full next-level approach, let's talk.

 

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