Human Financial Advisor Horror Stories about Portfolio Management
The “I Know You’re 80 and Should be in a CD, But Let’s Put You in a Risky Investment” Advisor
This is the type of advisor that deserves more than just a punch—maybe an eye gouge, a knee to the groin, or even a "people’s elbow" from The Rock.
I had a client whose mother was doing business with another advisor a couple of towns over. The daughter had a funny feeling about the advisor, so she urged her mom to transfer to me. When her mom brought in her account statements, I couldn’t believe what I saw. I had asked both the daughter and the mother what the intent of their investments was, and both agreed that the safety of the principal was a major concern.
The mom had living expenses to meet, and she was going to need to cash in some of the investments in the not-too-distant future. When I hear an 80-year-old widow tell me that she’s worried about her principal and needs access to the money in a short amount of time, I immediately think of CDs, money market accounts, or a savings account.
Well, not this advisor. No, this advisor put most of her money into different preferred stocks and long-term bonds. One of the preferred stocks had a maturity date of 2040. Now, for those of you who don’t understand how preferred stocks work, they resemble a hybrid of a stock and a bond. So, they can fluctuate like a stock and pay interest like a bond.
Well, when the time came that the mother needed the money, interest rates were fluctuating, and in just a few months' time, she saw a 30% drop in principal on those preferred stocks. When she needed to cash out those investments to generate some cash, she was taking a huge loss in principal. Sure, her investments were paying a very high dividend at the time, but that was of little comfort after taking such a huge hit on her money.
Lesson learned: If you think you need to access the money in your investments short term, don’t let an advisor con you into buying anything other than a CD.
What does an advisor do?
Years ago when I was getting started i spoke to a Schwab advisor. After speaking with him for an hour I still couldn’t figure out what a financial advisor does.
Do you pick stocks? “No, we allocate it to a few different index funds” which funds “funds you feel comfortable that suits your risk level” so I pick the funds?? “Yes” on so then what do you do??! “I advise you, and help you with your unique needs” my unique needs??? My need is for my money to grow as fast as possible.
Do some people have the unique need to lose money?? “….”
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The Impact of Bad Financial Advice
Getting poor financial advice can have serious consequences, from financial loss to emotional distress. More and more investors are choosing to take matters into their own hands – and we're here to help.
