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Advisor Errors

Every weekend there is a new financial plan in the press. The planning portion is usually fine; the investing part is maladroit. The so-called experts are infected by modern portfolio theory. Here are some examples.

• “As they move into retirement”, the adviser said, “they will need to reduce their volatility risk…” What’s volatility? In industry parlance, it’s falling stock prices. They want you to buy more bonds. But bonds are volatile also. And buying bonds when interest rates are rising is down right stupid. My favourite definition of volatility is “what happens when we’re were taken by surprise”. Volatility is investors changing their minds about the future more quickly. In a retirement portfolio, generally, you are holding fine individual companies with growing dividends. In the long run, these are safer than bonds. (Aug 19 ‘22 RoB)

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