By Dennis Kagel, Chartered Financial Consultant
One of my recent articles quoted the findings of a health study showing the relationship between market volatility and heart attacks. An actual study concluded that market volatility causes stress, worry, and sleeplessness in many people. The study went on to say that a logical conclusion is that heart attacks can be attributed to the conditions caused by the market going up and down dramatically, as it has recently. You see in our columns we are looking out for your physical health as well as your financial health.
I’m not sure that anyone would have the basis for a lawsuit against their financial advisor for causing their heart attack, but considering the above study and the litigious society that we live in today, it might not be that much of a stretch to imagine that day coming soon, especially when you consider the type of advice that many financial advisors give.
During recent wild swings in the market, local financial advisors were asked for their advice. The following are representative of the advice that was given as reported in a local newspaper:
- “You should not panic. You should just hang in there as it (the market) will come back.”
- “You need to be patient and think long term and don’t over react.”
- “As long as you’re diversified, you’ll be OK even if you’re totally in risk investments.”
Two local advisors were quoted as telling their clients the following:
- “I tell my clients not to look at the market and their accounts every day. Don’t pay such close attention to it. It’ll be OK.”
- “I tell my clients to just sit down and relax and have a bowl of popcorn.”
Is having a bowl of popcorn really going to help you manage your retirement accounts? And not watching your accounts makes a lot of sense, too (tongue firmly planted in cheek) because you just might check on it after not looking at it for a period of time and see that you’ve lost 20 percent!
Actually, I do realize what the “hang in there” market pundits are trying to say and that is simply that given enough time the market has always come back, BUT this raises a very important question. How long will it take to come back? What if you’d retired in 2007 and left your retirement accounts at risk and your accounts lost 40 percent by early 2009? If your advisor told you at that point, “It will come back, just hang in there,” would that have made you feel better?
In my opinion, it’s dangerous advice to advocate the “buy and hold” approach with clients and to tell them in volatile times to “hang in there because the market will come back.” Regular readers of my column know that I am not against the market. I realize that I make statements that could be misinterpreted, so I want to make it clear as to my financial philosophy. I am not against the market. I just think that many people over do it, especially when they are near or in retirement.
Dennis Kagel is the president of Dennis Kagel Financial Services at 321 Susan Drive, Suite A in Normal. He can be reached at 309-454-9172.
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