Is your financial adviser an idiot? Maybe, maybe not
— -- Q: After losing $50,000 in the market's downturn, my brokerage firm has reassigned me to another adviser. Should I give up on this firm and look elsewhere?
A: Most people that read your question would probably be shocked and tell you to take your business elsewhere.
Clearly, no one wants to lose money. But it's unclear from the information you provided whether the $50,000 loss is alarming. Remember that the stock market is down almost 40% from its high a year ago. If your portfolio was worth $250,000 at the peak, a $50,000 loss would only be a 20% decline. If you asked your adviser to invest in a diversified basket of U.S. stocks, being down 20% is in line with what you should expect.
But there's more. Let's say you told your adviser two years ago that you had a high tolerance for risk and you wanted maximum returns. If that's the case, your adviser may have put you into riskier assets to boost your returns. And if you said you could handle substantial risk, you shouldn't be surprised that you're looking at large losses. Remember, you get greater returns by taking greater risk.
Under those scenarios, your adviser may not be to blame. Still, it is possible your adviser steered you wrong.
If you're a retiree and you told your adviser you did not want to risk your principal, you may be understandably upset. Also, if your loss is much greater than 40%, and you told your adviser you wanted a portfolio that's less risky than the market, you also have a legitimate gripe.
It's probably a good time to calculate what your actual loss is. If you don't know how, here are instructions.
You'll also want to review your notes from when you met your adviser. What did you tell your adviser regarding your taste for risk? Did you say you were willing to tolerate small losses, midsize losses or large losses? Or did you say you didn't want to lose any principal at all? It's critical to know what your instructions were before you can decide if you've been given poor direction.
