Sunday, December 07, 2008

Warnings for Investment Advice

It would be nice if investment advice came with warnings like pharmaceuticals. After all, the malpractice of advisers is every bit as dangerous as, say, erections lasting three hours or more.

What brought on this rant (and my creative rendering above) was an article in a recent magazine published by one of the larger brokerage firms. The article described case studies of clients managing their retirements and featured a mid-50 year old couple "leaving a margin of safety" by placing only 80% of their money in stocks. This, by the way, was referred to as the firm's "moderately aggressive" asset allocation model and was rationalized as protection against inflation.

Nowhere in the article was it mentioned that this strategy either has left or would have destroyed at least a third of the baby boomers' savings. Also not mentioned were deflation or the prospects for the portion of the portfolio devoted to fixed income at a time when record high rates of default are being priced into markets.

The only mention of this ruinous path was a single quote from the boomer/investor: "The recent market turmoil may result in a postponement of some of my plans, but I still have the peace of mind that I have some time for my investments to recover."

If I recall my stages of grieving, denial comes early in the process, not toward the end. I suspect we'll see an end to the secular bear market when investors lose the peace of mind associated with buy-and-hold.