Advisory clients are bombarded with news during both good and bad markets, so it is understandable that they often want to take action.

Clients have a broad array of investment strategies and products from which to choose, with each one seeming to have more and better bells and whistles.

As a result of both market volatility and an abundance of choices, they often think that their advisers need to take action, either to harness an opportunity or avoid a negative consequence.

In reality, however, sometimes doing nothing and sticking to a long-term asset allocation is the most appropriate course of action, though it can be incredibly hard to do.

For example, from Jan. 1 and Feb. 11, the S&P 500 declined by just over 10%. Investors, including many advisory clients, were likely concerned that the sharp decline would continue, and they sold their holdings as a result.

Although some of them may have avoided further losses, many investors were just as likely to have locked in a permanent loss. Had an investor remained focused on his or her long-term risk tolerance, as well as goals and objectives, and remained invested, that investor would have generated a total return of 1.3% at the end of the first quarter.

Not many investors would get excited about earning a return of 1%, but it is certainly preferable to locking in a 10% loss.

Then there are the myriad investment options, ranging from individual securities to packaged products.

Is one better than the other? No, not necessarily.

It depends on the client’s long-term objectives and goals.

Additionally, while packaged products are being developed on a regular basis, some are truly new and unique, while others are just repackaging of old ones. For example, a strategy that uses individual securities may be the best solution for one client who is very sensitive to taxes, while packaged products that pass on capital gains may better suit another whose assets are tax-deferred.


This story is part of a 30-30 series on ways to build a better portfolio.

Peter Greenberger

Peter Greenberger

Peter Greenberger is the director of mutual fund research and marketing at Raymond James in St. Petersburg, Fla.