The greatest challenge to an investor in a falling market is to decide when to take “Stop Loss” steps. A Stop Loss step is the unwinding of a position in order to stem the threat of continuing loss.
When
When is the right time to take a Stop Loss step? The most obvious time is when a trusted professional reviews your financial circumstances and provides you with a clear recommendation to take steps to stop your losses. If you disregard this professional advice, then you do so at your own risk.
The more challenging time to take a Stop Loss step is when your professional financial advisor is not recommending action, but the threat/risk of continued devaluation in your portfolio is beyond what you can tolerate.
Is the proverbial “horse out of the barn”? Is there still some something valuable in the barn that your action will preserve? How do you know when enough is enough? How do you know when you can no longer trust your professional advisor?
These are all difficult questions. Each person has their unique risk tolerance. Each person’s experience varies in how long they will trust a financial advisor when the loss threatens their financial security.
We cannot tell you when to take Stop Loss steps. What we can tell you is that your professional financial advisor probably promised to help you plan for all eventualities. He or she probably did not guarantee the results of an individual investment or group of investments. He or she probably promised to use their expertise to make sure you were properly positioned with not too much risk and just the right amount of security. They promised to follow a tried and true process for guaranteeing that you bought, sold and/or held the right investments using whatever financial products were appropriate to your unique needs.
Once this promise is made, many professional financial advisors forget about their promise of a process guarantee. Many professional financial advisors default to bromides like “Balanced Funds” and “Diversified Holdings” and “International” or “Global“. They default to complex products that seem to be too good to be true and perfect for you. It is only when the markets have bad days that their process and picks are tried and found wanting.
So, before relying on your professional financial advisor’s soothing words and generalizations during a falling market, ask yourself:
- Do I have a written plan?
- Do I have pre-established thresholds for loss tolerances?
- Do I have sufficient security to weather a long term financial downturn?
- Did the advisor explain the risk I faced?
- Did the advisor help me to understand what this might mean to ME?
- Did the advisor warn me that the period of 2003-2008 was widely recognized to be a “bubble” and that history shows that bubbles routinely burst?
- Did the advisor tell me that some bursts are worse than others. Some bursts can be devastating?
- Has my advisor helped me to consider and plan for a stop loss step, if necessary, but not necessarily?
If your financial advisor has failed to take these steps and you have suffered a resulting financial loss, then call Geller & Associates for a free intial, no-commitment consultation.