Let’s eavesdrop on Q (the anxious investor) and A (the conventionally-wise advisor) as they discuss what’s eating at Q…
Q: The market just had its worst quarter since the 1st quarter of 2009…
A: That’s what they tell me…
Q: Should I get out of stocks?
A: Is it time to spend the money?
Q: Well no, I just don’t want to lose any more…
A: Have you lost any lately?
Q: Well duh, it was the worst quarter in 3 years!
A: Yes, I know that… But how did you lose money?
Q: What are you talking about? I lost money because you have 60% of my portfolio in stocks…
A: Yes, I know that, but I don’t see how you lost any money…
Q: Have you looked at my account lately?
A: Of course…
Q: You haven’t noticed how much it’s down?
A: Oh I get it – you think you lost money because your account value’s down…
Q: You think I didn’t?
A: Well, the way you look at it, you did. The way I look at it you still have all the shares of funds, etc. you had at the beginning of the quarter – in fact, you have more in the funds where you reinvested the dividends… If you haven’t sold, in my view, you haven’t lost…
Q: Alright I get that, but as far as I’m concerned I’m worth less money than I was 3 months ago… And I know you’re going to say; only if I sell… But I do remember you sold some after our last review meeting… I don’t recall why, but I wish you had sold more…
A: The reason we sold was because the market had done well and your allocation to stocks was up to 70%… We sold back to your 60% target… Which leads me to today’s recommendation… Because stocks are down, your current exposure is 54%… We need to buy you back to 60%…
Q: But stocks are getting creamed. Shouldn’t we wait and buy when things get better…
A: Notice how you said “when things get better”, as opposed to “if things get better”…
Q: Well yeah, I know things will get better, eventually. But I see no reason for optimism at the moment…
A: Let me ask you a question; when do you think stocks are at their cheapest, when things look bright or when they look bleak?
Q: Hmm… Hadn’t thought of it that way.. You’re saying when things look bad, stocks are cheap – because everyone’s selling… I guess that makes sense…
A: Man you catch on quick!
Q: So you think it’s a good time to buy?
A: I think it’s time to rebalance your portfolio…
Q: But you obviously think stocks are cheap…
A: I know they’re cheap – compared to where they were at our last review meeting… Whether they’ll get cheaper going forward is anybody’s guess…
Q: So what if they get cheaper…
A: We’ll buy more, back to your target, at our next review…
Q: And if they’re up, we’ll sell?
A: Yep, just like last time…
Q: I understand, I just hate seeing the declines on my statement…
A: Try to think of it in the context of our next review meeting… When you rebalance in a down market, you’re exploiting an opportunity… That’s smart investing… In essence; a decline in the value on your statement is nothing more than a signal that you’ll be buying sometime soon… We want to be buying, not selling, in down markets…
Q: So down markets are good?
A: You betcha they are…