Hypothetically, say you had a brokerage account worth $5 million, and when you got your statement you saw that the financial advisor had taken $3 million out of your account and transferred it to his. How would you feel? Would you just accept it because the financial advisor is so personable and nice, almost like a friend? Would you send in more money? Would you ask for an updated financial plan to see how you could live on $2 million?
Then, suppose the financial advisor met with you, said you were right on track to meet your long-term goals, and then he removed another 70%? How would you feel?
What would you do? There is a TV program by that name. It sets up certain hypothetical situations that we encounter on a regular basis, and film the reaction of observers to see what they do. In this hypothetical situation, What Would You Do?
I said “hypothetically”, but the analogy might be truer than you think. Think of starting with $500,000 and growing it around five percent (5%) per year for 20 years. That is about what most financial plans achieve, as far as I can tell. Most financial plans are achieving around 5% growth if there is a split between stocks, bonds, cash, annuities, and commodities. See the table below for the difference between 5% and 12%:
That brings me back to the hypothetical: there is $3 million missing in the account. No, in real life the funds did not go into the financial advisor’s account. But it was a direct result of the investment advisor’s recommendations. No, your money is not begin stolen in most senses of the word, but you can view it as being missing – the cost of a missed opportunity.
You should check the return in your portfolio, see if it is included on your brokerage statement or some other document. At Adams Financial Concepts, we give our clients a quarterly summary of their account(s) and a report showing their actual annual percentage returns. AFC compares what client accounts are doing to a benchmark. In the case of a stock accounts, the comparison is to the S&P 500 Total Return. I will tell you it has not been 5%.
I have heard financial advisors make the claim that investing in different asset classes reduces risk. It sure didn’t during the Great Recession.
Look at the difference between the ending values in the table above. Do you know what percentage your account has achieved? If it is not on your statement, there is a reason. Your advisor or their firm may not want to let you know. I like my clients to know how well they are doing. Having been in the industry for 34 years I know most individuals are making closer to the 5% returns and a lucky few manage 12%.
But that is not the whole story. I believe there is an 87.5% chance that the United States will see a time of very high inflation as we experienced in the 1960s through the 1970s. At that time, the dollar lost 70% of its value. If there is a significant chance of that happening, look at how returns are impacted by high inflation.
Let me ask this: in which of these spots would you prefer to be? Do you really love your financial advisor so much that you would settle for a 5% return? Really? What will you do?
Look at your statement as of the end of July. Is it up 15% or more this year? If not, you have lost out already on what could have been. That missing money will never be made up. All you can do is go forward. There is a reason to move now. Every day you wait is like another day when you are missing money. Every day you hesitate is another day you will regret in 2022 or 2030 or 2040.
For my clients I want to achieve superior returns. Don’t you? If you are not one of my clients it is easy to make the change. Just click on the “contact us” button below and we will get it started on what we feel will be better days ahead.
President & Principal
 Berger, Rob “Basic Asset Allocation Models for Your Portfolio,” Forbes Magazine (June 9, 2020), https://www.forbes.com/advisor/retirement/portfolio-allocation-models/.