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The Stop-Loss Challenge
The greatest challenge to an investor in a falling market is to decide when to take stop-loss steps for investments that are failing.
The most obvious time to initiate stop-loss steps is when your financial advisor reviews your circumstances and provides you with a clear recommendation to stop your losses. The more challenging time to take stop-loss steps is when your advisor is not recommending action, regardless of the fact that the risk of continued loss is beyond what you can tolerate. In other words, your advisor is either not listening to you or is disregarding your concerns.
As lawyers, we cannot tell you when to take stop-loss steps. What we can tell you is that your financial advisor probably promised to help you plan for all eventualities; to make sure you were properly positioned with not too much risk for you personally; and to follow a “tried and true” process of buying, selling and holding financial products that were appropriate to your unique needs.
We can also tell you that many financial advisors routinely recommend Balanced Funds, Principal Protected, Diversified Holdings and International or Global products that often seem too good to be true, and very likely are just that. And, when the markets have bad days, this “tried and true” process ends up being tried and found wanting. These advisors will also use soothing words and vague generalizations when answering your questions during a falling market, when they may well have no insight into why you are suffering losses that exceed your worst fears.
To determine whether you want to follow your advisor’s recommendation that you “ride out the market downturn,” ask yourself the following questions:
- Has my financial advisor worked with me to create a written plan?
- Do I have pre-established limits on how much I can lose?
- Do I have enough to weather a long-term financial downturn?
- Did my advisor explain the risk I faced for each recommended investment?
- Did my advisor help me to understand what the risk of loss might mean to me?
- Did my advisor warn me that the period of 2003-2007 was widely recognized to be a “bubble” and that history shows that bubbles burst?
- Did my advisor tell me that some financial bubbles burst more severely than others, and that the worst of them can be devastating?
- Has my advisor helped me to consider and plan for a stop-loss step, if necessary?
Fighting for Your Rights
John Hollander & Harold Geller
We specialize in investigating cases of losses caused by financial advisors and fighting for investors’ rights. We represent clients in civil claims for compensation. If you think you have been a victim of your financial advisor’s failure to establish appropriate steps to stop your losses during a market downturn, contact us for a no-obligation consultation.
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