Monday Market Update – August 8

August 8, 2022

Forefront‘s Weekly Market Notes

Expectations vs. Reality

Last week, I met with a couple considering joining the Forefront Family, but the meeting took an interesting turn. As we got to know each other, they told me about their relationship with their other advisor and how much they liked him. As the meeting continued, I realized that I couldn’t figure out what was causing them to consider leaving the current advisor.

At some point, it finally came out that the reason they were unhappy was that their current advisor hadn’t made any significant changes to their portfolio all year. In their opinion, with so much going on in the world, it appeared their advisor wasn’t paying them any attention.

They have met with him multiple times this year, both in person and via zoom, have his cell phone number, and get emails regularly from him. At the end of the meeting, I told them my recommendation was for them to stay with their current advisor, and they looked at me like I was crazy.

Change For the Sake of Change

I told this story over the weekend to a friend, who told me I was the only person he knew who would actively tell a potential client to stay with the competition.

Activity inside a portfolio for the sake of activity or to give some impression of “doing work” for the client is entirely foolish. Almost as silly as judging your advisor on whether or not they tried to day trade your portfolio during the first real economic correction in fourteen years or during a global pandemic that no one alive had ever experienced.

What Does a Financial Advisor Do? 

Trade your account in hopes of outperforming the market is not something that financial advisors do.

Not the good ones, at least.

As I explained to the couple I met last week, what they were asking of their advisor wasn’t realistic, nor what they should want from someone helping to manage their life savings.

Financial Planners/Advisors don’t provide you alpha, or outperformance, based on your investments; they find you alpha based on being tax efficient and cost-efficient with your investing.

Stock picking is incredibly hard, and timing the market is even harder, both things no good advisor will ever try and do for their clients. If I could always pick the right stocks at the right time, I would be trading my account on an island somewhere. An island that I probably own.

We are all oblivious to our cognitive biases and shortcomings, and your behavior will be the most significant factor in determining your investment returns, not the investments themselves. I am here to help you work around those cognitive shortcomings, understand how you react to different market conditions, and build a plan to keep you even-keeled. That plan is different for everyone, but the goal isn’t to find the next hot stock; it is to keep your cognitive biases and emotions in check. The plan and the relationship are the product, not the portfolio.

The value comes from a consistent process to save money, a relationship to build trust and comfort, and financial education that helps you recognize that consistently average investment returns, with a focus on tax and cost efficiency, turn into above average returns over time.