I have literally lost count of the number of articles I’ve read recently in which financial advisers have been complimented – or, more likely, have been complimenting themselves – on their brilliant strategy for helping their clients weather highly-volatile investment markets.
This brilliant strategy is easily summarised: do nothing. Once the markets have plummeted and taken a 10, 20, even 30 per cent bite out of the clients’ portfolios, the smart adviser works hard to convince the clients – and indeed to convince him or herself – to take no action at all, just sit tight and wait for the markets to come back. “You can’t time the markets,” they say. And there’s another little saying which they like because it almost sounds quite clever, “It’s time in the markets, not timing the markets,” which most people don’t actually get because it just sounds like the same thing said twice. And as the days of doing nothing pass by, the advisers congratulate themselves on doing a better and better job.
Now I’m not saying that they’re wrong about this. In the long run, doing nothing may be the least bad option. But if I’m not saying they’re wrong, I am saying several things of a distinctly dubious and lukewarm nature, such as:
- You see, for millions of ordinary people, there’s one of your biggest problems with investing right there. All sorts of things can start going badly wrong – a meal you’re cooking, a movie you’re watching, a journey you’re making – but I can’t think of any others where no matter how horrendously wrong they’re going, the best and most expert advice available is just to strap yourself in, sit tight and hope it turns out all right in the long run. It’s not how we like to handle such circumstances. It feels powerless and pathetic.
- Also – and kind of on the other side of the same coin – there’s one of your biggest problems with expert financial advisers right there. Leaving aside the obvious point that the financial adviser you really want is the one who gets you out of the market the day before it crashes 10, 20 or even 30 per cent, is it really true that there’s really nothing worth doing? Even if, say, at this moment, you’re still invested in airlines, pub groups and cruise companies? If that’s the case, what “do nothing” really means is “you and your adviser aren’t smart enough, or quick enough, to get out while it’s still worth it, so now you’ll have to stay put with the rest of the mugs and the sluggards.” Probably true. But not what you want to hear.
- I know I keep making this point – it’s a consequence of my age -but it’s different in decumulation. (That’s “different” in the sense of “worse.”) If you’re drawing an income from your investments rather than adding to them, in falling markets you suffer from pound-coast averaging in reverse – pound-cost ravaging, some call it. Sitting tight for years and waiting for markets to come back is a very unattractive option.
- Finally – and sorry if this sounds a bit mean-spirited – “Do nothing” isn’t really the kind of professional advice that I expect to pay a lot of money for. It may well be that it’s advice born of a lifetime’s learning and experience, and the fact that it’s only two words and doesn’t sound very inspiring is neither here nor there. But it is only two words, and it doesn’t sound very inspiring, and I reckon it’s worth about £250 tops.
This last point doesn’t mean that advisers should generate complex programmes of activity which only make things worse, simply in order to justify a bigger fee.
Perish the thought. That sounds like the sort of thing that only a marketing consultant might do.