Some financial advisers have panicked. Has yours?
Lots of people who give out advice on investing and retirement (myself included) have been questioning their fundamental assumptions about risk and return over the last several months.
Recently, a company surveyed financial advisers about how the recession has affected their advice, and 77% said that they had altered their asset allocation strategy in reaction to the sell off. Thirty-six percent said that they felt less confident in their abilities to manage their clients’ assets. You can read more about the survey here.
I think it’s healthy to periodically check assumptions about something as important as asset allocation. It’s unfortunate that it has to happen after many soon-to-be retirees have lost more than 40% of their money. In the first story linked about the survey, a survey administrator said that the surveyed advisers have moved their clients’ money to more conservative investments like bonds and cash.
I don’t think such a shift is necessarily a bad move. Some of their clients might have discovered that they couldn’t handle the risk their previous portfolios entailed. But I hope advisers are accompanying that shift with a note to clients that they better save a higher percentage of their income to make up for the lower expected returns from their new portfolio. Moving to a conservative allocation simply because they don’t want to see their clients’ portfolios bounce around without compensating in some way could really hurt. Instead of having say, a 70% chance of retiring when they want in a traditional allocation (which I understand isn’t good), their clients might have a 0% chance of retiring when they want if they choose to go with the low guaranteed return of safe investments.
Again, I have no problem with going safe. There’s just some extra work involved if they do.
— Joe Light
