‘Every month I express my concerns to my adviser, but he says not to worry.’ My 401(k) has lost over 20% and I can’t afford to lose that kind of money. Is it time to find a new adviser?


Every month I express my concerns to my adviser, but he says not to worry and that it will bounce back.


Getty Images

Question: My 401(k) was doing ok for a while, but since January of this year it has been losing money that I can no longer afford to lose. I want to retire in a year and my 401(k) has lost over 20% and was not that large to begin with. Every month I express my concerns to my adviser, but he says not to worry and that it will bounce back. I do not see that happening anytime soon. What should I do? (Looking for a financial adviser? You can use this tool to get matched with a financial adviser who might meet your needs here.)

Answer: In general, a 20% loss for someone retiring in a year suggests the account may be invested too aggressively, says certified financial planner Daniel P. Forbes of Forbes Financial Planning, Inc. That said, certified financial planner Grace Yung of Midtown Financial points out that this is a midterm election year and historically, midterm election years are volatile due to uncertainty. “We have many other factors contributing to the current market action like high inflation, rising interest rates and geopolitical instability,” says Yung.

Have a question about dealing with your financial planner or looking to hire a new one? Email [email protected]

So do you need a new financial adviser (you can use this tool to get matched with an adviser who might meet your needs)? Pros say that depends. The first thing would be to have a serious conversation with your current adviser because it seems your investment portfolio may be too aggressive for your willingness to ride out the market’s ups and downs. “Instead of hoping for a bounce-back, the client and adviser should revisit a risk analysis and retirement income forecast to make sure all is on track,” says Forbes.  And John Piershale, certified financial planner at John Piershale Wealth Management says: “Ask your adviser for a risk assessment of your portfolio against your risk tolerance and then make any adjustments.”

For his part, Ian Rea, certified financial planner at Slate Peak Financial Services, says: “If you’re truly not comfortable with the level of volatility in your portfolio, talk candidly about that with your adviser. You have options beyond just selling everything and taking a permanent loss. Ask your adviser to shift the portfolio to a somewhat more conservative approach,” says Rea. That said, that may mean locking in some losses now.

One thing the adviser may be doing somewhat right, pros say, is telling you to stay the course. Indeed, Rea says it’s important to keep in mind that you have not yet actually incurred a 20% loss. “That only happens if you sell. In the meantime, it’s only a decline in value, which can be expected to happen periodically, even for the best investment portfolios,” says Rea. And for his part, Elliot Dole, certified financial planner at Buckingham Strategic Wealth, says no one likes to see their portfolio shrink, but fear-based selling can cause real financial harm. “That ‘get me out’ selling may feel good in the short run, but when markets recover and you’re sidelined, you’re facing another difficult decision of when to get back in, now at higher prices,” says Dole. 

But it is a bit of a red flag that your adviser may not have been investing your funds in a way that suited your risk tolerance: That’s something he or she should have determined before investing the money. And the adviser also should have shared market expectations with you. “A financial planner needs to set realistic expectations in up and down markets and listen to the clients needs and risk tolerance. In this example, the client seems to be getting nervous and uncomfortable and this can lead to a bad relationship,” says certified financial planner Andrew Feldman of AJ Feldman Financial. (You can use this tool to get matched with an adviser who might meet your needs.)



Source link

Leave a Reply

Your email address will not be published.