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Plan Well, Retire Well

Saving and investing your money

USA Today Says Majority of Financial Advisers Recommending Reallocating Assets

I picked up a copy of USA Today on Tuesday (Nov. 18) and noticed an interesting statement. Under a heading declaring "Financial advisers split on asset reallocations," a green piggy showed that 53% of financial advisers have "recommended asset reallocations to their clients because of the current economy."

You might assume that this means financial advisers are telling clients to sell stocks and stock mutual funds because the losses have them scared. But I wondered whether it might mean just the opposite: maybe these advisers were simply rebalancing their clients' portfolios, just as I wrote about in a previous post, How's Your Asset Allocation? Time to Rebalance?, and might have actually been buying stocks or stock mutual funds. I decided to investigate.

The source of the USA Today info was listed as an Investment News survey of 765 financial advisers conducted between October 1 and 6. So, I went in search of the whole story and found the news release from Investment News. Here's the deal:

There were actually two surveys, one of financial advisers (by Investment News) and one of investors, conducted by Crain's. Among financial advisers, just over half (53%) were recommending that their clients reallocate investments. Among individual investors, only about one-fourth (27%) reported that they had moved money out of one type of investment and into another within the past month. The apparent conclusion might be that advisers are panicking more than individual investors, and selling investments that have lost lots of their value- stocks and mutual funds that invest in stocks.

But let's look further into the news release.

Exactly what investment changes did those advisers suggest to their clients?

  • 57.5% recommended selling stocks or stock mutual funds.
  • 56% recommended investing in those same investments.
  • 24% recommended selling bonds or bond mutual funds.
  • 42% recommended buying them.
  • 21% recommended withdrawing from bank savings accounts.

Hmm. Could it be...some of those financial advisers may have checked their clients asset allocations, realized that the proportion of their portfolios in each asset class had shifted, and are simply selling those that have become overweighted? What did the 21% who suggested taking money out of the bank plan to do with that? Either put it under the mattress or...use it to invest in beaten-down stocks, maybe?

The news release states that individual investors were much more likely to "stand pat" than the financial advisers. Among those who did make changes in their investments, the pattern seems to indicate that they were simply moving to cash out of fear that they might lose even more money in other investments: 59.6% had sold stocks and stock mutual funds, "36.5% had liquidated investments into cash and 32.3% had deposited money into bank savings accounts." That sounds more like selling as a result of fear, rather than rebalancing according to a plan.

So I respectfully desagree with the implication of the USA Today Snapshot and the news release. Maybe advisers were selling off equities in a bit of a panic, but maybe they were rebalancing according to investments plans and policies that were put in place long before the current financial situation. The fact that fewer indivduals made changes could mean that they were less likely to have a plan for their investments, and therefore did not realize that they might need to rebalance their portfolio - not that they were being calmer, wiser decision-makers than the advisers.

My suggestion is this: read between the lines, think critically about what you read, and draw your own conclusions.

(In case you were wondering why some of those numbers don't seem to add up: In both surveys, respondents could select more than one response to each question.)

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