April Fools’ Day Rant
When you invest with help of financial adviser or investment portfolio manager you hear it … “stay invested”. You heard it in fall of 2007, in summer of 2008, and in the beginning of 2009. You heard it often. Every time the market took a dive, you heard it, and then the market took another dive.
No matter what the economic outlook was, you heard it. You heard it over and over in person, and on all the network and cable TV channels. There were other opinions too, but the “experts” who consistently and mindlessly touted the “stay invested” mantra were, almost without exception, the financial advisers and investment portfolio managers.
Why this group of “experts” was so consistent and so wrong? Simple, they had their, not your, interest at heart. Their compensation is directly linked to the size of your investment they manage. Their compensation does not depend on the results they achieve managing your investment. Conflict of interest … plain and simple. Their “stay invested” slogan is a smoke screen used to obscure the obvious, and to discourage you from looking at other options.
If you were not convinced by their first “stay invested” rule, then they probably used the second one … “if you have a stomach for the ups and downs that come with risk, you’ll be rewarded”. They tried to shame you and make you feel like a wimp. Well, heck … the risk is not about your stomach. It’s about making or missing an important goal. Whose goal? Yours … not theirs … the conflict of interest again. If you would hedge the risk and scaled down your investment portfolio or went to cash, their compensation would be affected negatively.
Therefore, the financial advisers and investment portfolio managers not only do not want you to hedge the risk, they do not hedge the risk themselves while managing your investment. They march boldly to face the risk, and they use your money to hedge their losses.
Ah, the feeling of nausea …