Retirees and other retail investors who lose money in the stock market often don’t know where to turn to. In fact, many people are often surprised to learn that they can recover their investment losses, but this realization is often delayed or completely obscured by our understanding of the markets being informed by two competing views. On the one hand, the daily news feed of a fluctuating market conditions us to believe that putting our hard-earned savings in the stock market has its risks, no different from a casino, so “buyer beware.” On the other hand, investment banks and brokerage firms pump out a steady diet of ads that lead us to believe that their financial advisers can guide us with our investment choices to help manage the risks, and safely plan for our retirement years.
For the average investor, it is difficult to know whether one is truly receiving sound investment advice. A booming market can often hide the flaws in a poorly constructed investment portfolio. Flaws in investment strategy usually don’t reveal themselves until the markets show some extreme volatility. We are seeing this of late in the wake of the Coronavirus fallout — the market goes down by a thousand points one morning, only to swing up by a thousand points the same afternoon. This leads many investors to ask a logical question: If the market went down by a certain amount and then recovered by the same amount or more, how come my portfolio did not rebound in kind? Diagnosing what went wrong with your portfolio can be a challenge for the average person, and financial advisers and firms will be quick to distance themselves from any responsibility, often blaming the market and then encouraging you to just hold on.
It is our human instinct to trust the financial professionals whom we have built a relationship with over the years. In a bull market, that relationship and bond of trust likely only grew stronger. So we are reluctant to burn a bridge and walk away from a bad adviser, who in some cases may have given you tickets for a sporting event or improperly befriended you (it is a business relationship and your broker should not rely on your friendship).