Recently, one particular client was looking for someone to help them reach their goals before retirement. With a seven-figure portfolio, he has done quite well for himself. But he was now interviewing for help, and a few brokers in town and us. They decided to go with another firm.
Now, let's fast forward about eight months.
I receive a phone call early January of this year, and now the person said, "Hey Justin, I need to sit down and talk with you because I made a mistake". Well, that's not something you hear from a prospect. I said, "In what way did you make a mistake?"
He said, "Well I went with another person, a broker in town, and this last year I made no return on my portfolio."
I was thinking that makes no sense to me. How is that possible? The S&P is hitting all-time highs, the DOW Jones just broke 21,000, you would think the portfolio should be reflecting some gains.
Come to find out, the portfolio had actually lost 2%. In a portfolio invested almost 100% in stocks, that's crazy. How is that possible? How is that possible you could lose 2% in a portfolio, in a market, depending on which index has returned 4 to 8%? What had happened was the broker, who thought he could outperform the market, actually didn't. There is not a person on earth that knows what the markets are going to do.
The Problem with Market Timing
The allure is the broker can go in and buy and sell to protect the downside, yet still, make the upside. There is a research firm out of Virginia, CXO Research firm, that did an analysis on that particular issue and 47% of the time the financial experts were wrong. If I have a quarter in my pocket and I flipped it heads or tails, I'm going to be 50% right or 50% wrong. I have a better chance of being right by flipping a quarter than many financial experts. This client may have been better positioned by placing their money in an index fund, a passive index fund.
That's why I take the position that when it comes to investing use some index funds. Use some index ETFs, put a majority of your money there and if you want. Use some satellite positions in a particular area that you think is going to go off and have some good returns, go for it. Had this client done that, he could have a potential $300,000 more in his portfolio. That's a lot of moolah! That's a ton of money!
I would love to meet with you to discuss market timing and other options. Let's meet.
DISCLOSURE: The hypothetical investment information is for illustration purposes and should not be deemed a representation of past or future results.