Is It Panic If My Broker Tells Me to Get Out?

[tangomonster]

When we ERd a couple of years ago, we swore we wouldn't panic with a down/bear market. We intended to just leave our money in for the long-term (50% in muni bonds, 50% in mutual funds).

BUT-----with the little I understand about economics and cycles, I've been feeling that maybe the old wisdom of sitting tight didn't hold, that there are too many negatives and changes to promise that things will turn around anytime soon. My husband made me call our Fidelity broker because he was tired of listening to my doom and gloom. He was sure that the broker would advise us to keep cool and not react/overreact.

As much as I usually love being right angel, this is one case where I wish my husband (much more optimistic than me in every aspect of life) had the right idea. According to the broker, he doesn't. The broker says that he was sure that the market would improve for the second half of the year, but now he (and the gurus at Fidelity) are convinced it will get worse---and stay bad for the next couple of years. He thinks we need to decrease our mutual fundings at least 15% and get rid of the index funds, which are so heavily in the financial sector. He thinks that the only sectors that can make money are commodities and utilities. He also thinks that bond/funds, especially global, will be good (Brazil will supposedly be a major player in the new world economy) and to "overweight in cash, using cash as an asset class."

The broker said that everything we have been doing (and just discussed with him less than six months ago) is invalid (like allocating for growth, balance, diversity, looking at midcaps vs. small and large): "the paradigm has completely changed."

Fidelity is sponsoring a free seminar to advise investors and we will be discussing this further with the broker next week. I'm almost positive that we will reduce our positions and will focus on preserving our assets rather than growing them. So is this panic---or just following my broker's advice?

 

[rs0460a]

The broker says that he was sure that the market would improve for the second half of the year, but now he (and the gurus at Fidelity) are convinced it will get worse---and stay bad for the next couple of years.

Assuming you are retired, you do have a "cash bucket", do you not in order to cover current expenses?

The question you have to ask yourself is do I have enough in it to live on, regardless of the market outlook for the next "x" years?

At the start of this year I had 3 years in my cash bucket, to cover 100% of my "unfunded" income (e.g. beyond my SPIA and VA disability income). Based upon my "history" of 25+ years in the market, I believe (for me) this will cover most instances (unless the world ends, and then I don't care )...

Assuming you do have a separate current income "bucket", you have to ask if you are willing to listen to the "short term rantings" of your Fidelity representative. I use the term "short term", since he (or the firm's economic forecasters) have changed their mind over the fairly short period of 6 months.

BTW, I'm with Fidelity (50/50 with Vanguard). However, I'm 100% with my own decisions as to how I established my AA, and following it for the long term (do you have an AA/IP in writing? If so, are you following it?)

The (bad news) wind may fill my sails, but I control the rudder, and the direction of my ship. Don't let "somebody else's wind" change your direction.

- Ron

 

[LOL!]

What makes the broker's advice any more correct or convincing than it was 6 months ago? You wrote that he says he was wrong then.

OTOH, I would like to see capitulation, so for my own benefit, I want everyone to sell out in panic as soon as possible.

I also think that stocks are going nowhere until (a) the price of oil drops and (b) lending institutions get some of their loans paid back. For every $10 that oil drops in price, I think the dow will go up 500 points.

Can you time all this? Good luck!

 

[donheff]

Good grief. Listening to this guy is like tossing dice. Fire the *@%.

 

[Dawg52]

The broker says that he was sure that the market would improve for the second half of the year, but now he (and the gurus at Fidelity) are convinced it will get worse---and stay bad for the next couple of years. He thinks we need to decrease our mutual fundings at least 15% and get rid of the index funds, which are so heavily in the financial sector

The broker said that everything we have been doing (and just discussed with him less than six months ago) is invalid (like allocating for growth, balance, diversity, looking at midcaps vs. small and large): "the paradigm has completely changed."

Too bad the brokers can't give you this advice when the market is at a top. Seems kind of late to me but the market could correct much further from here. Who knows?

 

[brewer12345]

Ignore this moron. Beter yet, fire them, because you are effectively paying them to parrot CNBC at the exact worst time.

 

[al_bundy]

it's only panic when Cramer blogs

"Get out, get out now" like he did in 1998 at the very moment the market turned around

 

[Dawg52]

OTOH, I would like to see capitulation, so for my own benefit, I want everyone to sell out in panic as soon as possible.

I played golf with a buddy yesterday who is a bigger worry than me.(Is that possible?) Anyway, I asked how he was handling the correction this time. He sold out and missed the rebound last time. He said he hasen't sold anything and plans to just ride it out. His allocation is about 50/50, like myself.

You wonder if there will be total capitulation if people like my buddy is holding. I haven't sold although I've thought about it. Looks like a signal for all you guys to sell because I usually do the wrong frigging thing!

 

[FinanceDude]

Capitulation won't occur unless the Dow drops to 10,000 or so.............IMHO.........

 

[brewer12345]

FWIW, the absolute depths of market crises are often marked by the bailout and/or implosion of a large financial institution. So Bear Stearns in March, LTCM in '98, etc. So if you see Lehman or Fannie/Freddie getting bailed out, it may be a sign that we have bottomed. Or it may not.

 

[ziggy29]

Why pay money to an investment advisor who tells you to sell low? I suppose he was pumping stocks at Dow 14,000?

 

[CitricAcid]

Same as what has been said above, if he had told you this in October it may be different, but he was wrong then so why is it different now? You do NOT want to miss the rebound the stock market will eventually have (be it 1 week from now, 1 month, 6 months, or two decades) 8)

 

[tangomonster]

I agree with all of you that this one broker is not all-knowing. If he was just giving his own personal opinion, I may not give that much credence to it. But he is basing it on the top Fidelity muckety-muck analysts and advisors.

Ziggy, I don't actually pay this Fidelity guy per se for his advice (but his salary is paid for by the management fees I indirectly pay to Fidelity as part of their mutual funds. And yes, quite right about his pushing at the high. Obviously this guy doesn't have a crystal ball.

Citric Acid, yup, I would have no difficulty sitting tight and waiting for the rebound----except for the last two words of your post! Two decades! I'd be 75! That's what scares me---that it could take two decades. Here I was investing in stocks to deal with inflation and grow my principal, not erode it and/or then have it be stagnant.

It seems like y'all feel it is appropriate to hold....but isn't it also appropriate to re-evaluate your holdings once or twice a year? And to make changes? I understand that the US economy is always experiencing outside forces and challenges.....and always has been. But is it possible that the changes and conditions that are currently impacting the market are more significant, pervasive, and longer-lasting than any we have previously seen...and that US stocks are unlikely to recover, let alone increase?

 

[brewer12345]

It seems like y'all feel it is appropriate to hold....but isn't it also appropriate to re-evaluate your holdings once or twice a year? And to make changes? I understand that the US economy is always experiencing outside forces and challenges.....and always has been. But is it possible that the changes and conditions that are currently impacting the market are more significant, pervasive, and longer-lasting than any we have previously seen...and that US stocks are unlikely to recover, let alone increase?

Yes! Yes!!!! Its all true!!!!! The markets are going to zero and will never recover!!!!!! We will all be living in ditches!!!!!!!! Dogs and cats will be living together!!!!!!!!!! And Jesus will come through the air to save all of his True Believers!!!!!!!!!!!

 

[REWahoo]

I agree with all of you that this one broker is not all-knowing. If he was just giving his own personal opinion, I may not give that much credence to it. But he is basing it on the top Fidelity muckety-muck analysts and advisors.

Interesting that your Fidelity broker is telling you to sell while this article on the Fidelity website appears to be warning of the dangers of "following the herd". Which one is correct?

 

[CitricAcid]

The appropriate time to change and tweak is when you need to change your asset allocation. As you are 55, depending on when you are going to retire, the 50 muni bonds / 50 equities asset allocation you described is pretty accurate. In other words, over time, the risk in the equities will give you the amount of growth you need to sustain your portfolio, the reason that people aren't always 100% stocks is because of times like these, they can go down. This is part of the asset allocation, so if you start to get away from the 50/50 allocation (say, if the stocks go down 20% and the bonds stay even, you'll be closer to 55muni/45equities) tweak it back to 50/50 by selling munis and buying equities. As the stocks start to gain on the munis, always try to keep your AA in line with your true risk tolerance maybe once or twice a year.

 

[rs0460a]

Yes! Yes!!!! Its all true!!!!! Dogs and cats will be living together!!!!!!!!!!

Isn't that a line from "Ghostbusters" ?

- Ron

 

[ziggy29]

Ziggy, I don't actually pay this Fidelity guy per se for his advice (but his salary is paid for by the management fees I indirectly pay to Fidelity as part of their mutual funds. And yes, quite right about his pushing at the high. Obviously this guy doesn't have a crystal ball.

[Disclaimer: I'm not Pollyanna. I don't know how low this may or may not go. In some ways it feels a lot worse than most downturns because of the "systemic risk" in big financials being exposed here.]

The problem with many brokers is that they earn their money by encouraging people to churn stocks for commissions. This is easiest to do by pushing greed when the market is reaching new highs and by pushing fear when the market is in the crapper. That's because it's easier to play on the client's emotions during that time.

When someone is seeing the market reaching new highs, a broker saying "sell" isn't likely to be heard by people being influenced by greed. Similarly, when someone is starting to panic, "hold on" (much less "buy more") is less likely to play into their emotions than "SELL IT ALL!!!!!!"

And those contrary pieces of advice don't generate commissions, either.

If a broker is going to encourage investors to time the market, they should be encouraging them to SELL when the investor is feeling greedy and seeing all-new highs, and encouraging them to BUY when blood is in the streets. Too often, they play on the fear and greed of their clients and instruct them to do the opposite.

Greed and fear are powerful emotions in investing, and they are also very powerful portfolio-killers.

 

[FIREd]

Hummm, interesting... Our FA called yesterday and left a message on our answering machine. After three months of silence he would like us to call him back "ASAP" all of the sudden. I wonder what he wants (could it have anything to do with the fact that the porfolio he manages on our behalf lost 15% since last year?). I'll know more in one hour...

 

[tangomonster]

That IS interesting, REWahoo----wonder if that was the Fidelity company line so people wouldn't panic and withdraw all that money? And now they have fine-tuned it by telling people to switch to commodities....But on the other hand, it WAS written three weeks ago---don't know if anything has changed enough within that time to justify the contradictory advice.

Citric Acid, I understand and agree with what you are saying, but the thing is I have already retired so I both need to preserve my assets since I will (hopefully!) never be working again and grow them because I am (relatively) young and family history indicates a long lifespan....

 

[DayDreaming]

Reading things like this makes me worried. This January, I finally decided to take charge of my own finances, and for the first time in my life, I felt that I had a good grasp on the concepts of managing one's own investments - Boglehead style. And now I'm hearing all this talk about how this time is different, and the rules are now changing... But... for better or worse, I'm sticking with my current AA and index fund investment strategy because it still feels like a better approach than reacting to the latest round of bad news. It still has me worried but I don't think that any other approach would make me feel any better.

 

[ziggy29]

That IS interesting, REWahoo----wonder if that was the Fidelity company line so people wouldn't panic and withdraw all that money? And now they have fine-tuned it by telling people to switch to commodities....But on the other hand, it WAS written three weeks ago---don't know if anything has changed enough within that time to justify the contradictory advice.

From a strictly financial standpoint, it seems Fidelity (or any other place that's both a fund family and a brokerage) would want to have fund owners stay the course and have brokerage account holders churn stocks.

Could explain the contradictory advice, I don't know.

 

[Rambler]

If you've got a few years stashed in cash, just hold on, and turn off the darn TV. Better yet if you have a good stash in cash and some munis or dividend producing stocks that will do most of the cash bucket re-filling for you. If you do turn on the TV, don't forget to fasten your seatbelt and take your dramamine!

R

 

[Lusitan]

Does your broker receive commissions on your trades? If he does, he has an incentive to convince you to move your money around. I wouldn't change my asset allocation all of a sudden based on this type of panic.

 

[huskerblue]

OUTSTANDING! The last time I heard "new paradigm" talk was in 1999. This is the best news I've heard in a long time = the bottom can't be too far into the future.