In our most recent posts, we have noted that the current bear market has revealed the deep problems in the existing structure of "wealth management" that we have long been aware of and warned about (long before we ever started a blog).
We have noted articles appearing which give evidence of the damage that the "intermediary" system can give rise to, in which well-meaning "financial advisors" or "wealth managers" outsource investments to third-party investment managers. In an attempt to funnel their clients' money into asset categories that were "working" when everything else wasn't, these financial intermediaries steered many investors into commodities and into international investments during 2008, often with catastrophic results.
We have also pointed out that because they do not manage the money themselves, "wealth management" professionals are forced to rely on money managers at large investment management companies which provide mutual funds or separate accounts for those clients. We noted that there are many structural drawbacks to mutual funds, in this post from December called "The further you are from owning individual companies . . ." and this one from May entitled "Some drawbacks of mutual funds." We have also noted that even separate accounts that some advisors use instead of mutual funds can fall prey to some of the same drawbacks as mutual funds, as explained in another post from December entitled "Anatomy of 'style drift'".
Investors who are now realizing the truth of some of these assertions, or who are facing losses from investments that have been hit harder than even the overall market, may be thinking of making changes to their portfolios going forward.
To investors in that sitaution, we would offer the following advice: "Beware of knee-jerk reactions." We would offer the same advice to those who ask us what changes, if any, should be made in the wake of the recent US presidential election.
Even if you are considering a major change to your investment structure (getting away from mutual funds, for example, or international investments), the dramatic price drops will turn around at some point for many investments, providing a major rally. That will be a better time to make necessary changes, rather than at the current depths. (Obviously, individual companies that are likely to go bankrupt would not see a rally, and such advice does not apply in those situations).
In the meantime, investors should be researching and preparing so that they are ready to move when the time is propitious.
This is the way we approach portfolio investment changes as professional portfolio managers, and one we believe is prudent for individual investors as well.
For future posts dealing with this same topic, see also:
Subscribe to receive new posts from the Taylor Frigon Advisor via email -- click here.
We have noted articles appearing which give evidence of the damage that the "intermediary" system can give rise to, in which well-meaning "financial advisors" or "wealth managers" outsource investments to third-party investment managers. In an attempt to funnel their clients' money into asset categories that were "working" when everything else wasn't, these financial intermediaries steered many investors into commodities and into international investments during 2008, often with catastrophic results.
We have also pointed out that because they do not manage the money themselves, "wealth management" professionals are forced to rely on money managers at large investment management companies which provide mutual funds or separate accounts for those clients. We noted that there are many structural drawbacks to mutual funds, in this post from December called "The further you are from owning individual companies . . ." and this one from May entitled "Some drawbacks of mutual funds." We have also noted that even separate accounts that some advisors use instead of mutual funds can fall prey to some of the same drawbacks as mutual funds, as explained in another post from December entitled "Anatomy of 'style drift'".
Investors who are now realizing the truth of some of these assertions, or who are facing losses from investments that have been hit harder than even the overall market, may be thinking of making changes to their portfolios going forward.
To investors in that sitaution, we would offer the following advice: "Beware of knee-jerk reactions." We would offer the same advice to those who ask us what changes, if any, should be made in the wake of the recent US presidential election.
Even if you are considering a major change to your investment structure (getting away from mutual funds, for example, or international investments), the dramatic price drops will turn around at some point for many investments, providing a major rally. That will be a better time to make necessary changes, rather than at the current depths. (Obviously, individual companies that are likely to go bankrupt would not see a rally, and such advice does not apply in those situations).
In the meantime, investors should be researching and preparing so that they are ready to move when the time is propitious.
This is the way we approach portfolio investment changes as professional portfolio managers, and one we believe is prudent for individual investors as well.
For future posts dealing with this same topic, see also:
- "The Unstoppable Wave" 01/12/2009.
- "The bonfire of the intermediaries" 01/29/2009.
- "If portfolios were parachutes" 03/09/2009.
- "Was the decade lost?" 01/14/2010.
- "Exaflood update" 06/01/2010.
- "Another wake-up call" 11/29/2010.
Subscribe to receive new posts from the Taylor Frigon Advisor via email -- click here.
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