Tuesday, June 17, 2008

Bad Advice Has Consequences

One of the most common questions I receive is "what clues are there that I might have a bad advisor?". That is inevitably followed by the question "what is it costing me?". The answer is that bad advise may cost you a few dollars in fees and a few dollars in lost performance during a strong market, or it may cost you a substantial portion of your portfolio and a lot in fees in a soft market, or it may cost you your retirement lifestyle, your savings and your hard earned retirement in a tough market. The above is not a scare tactic. A bad advisor becomes readily apparent in rough markets when earlier decisions made in a strong market are exposed to the negative market forces. When investors take the "flight to safety" you will quickly know if you are holding "safety" or excessive risk. Warren Buffet expresses this concept by stating "only when the tide goes out can we tell who was swimming without a swimsuit". In investor language that is what is known as "naked risk exposure". Lessons are very expensive for investors who discover that their advisor is a great talker but not much of a portfolio architect
The below link to another Ken Hawkin article may help you self diagnose some challenges in your own situation.

The Cost And Consequences Of Bad Investment Advice
by Ken Hawkins

Many investors still rely on their investment advisors to provide guidance and to help them manage their portfolios. The advice they receive is as varied as the background, knowledge and experience of their advisors. Some of it is good, some of it is bad, and some is just plain ugly.


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