Stan's World - Acting Against Instinct

S.F. Ehrlich Associates |

September 30, 2020

A few weeks ago, we moved my 98-year-old mother from independent living to long-term care. One of the reasons why we selected the community where she lives is because they have a continuum of care, to include independent living, assisted living, and skilled nursing.

(As an aside, for anyone considering independent living, a continuum of care on the same campus is beneficial for many reasons. Call me if you’re interested in getting more information on this topic; I’m happy to share all that I have learned over the years.)

Despite my mother’s age, the decision to relocate her was admittedly difficult for me. Similarly, I’m sure it has been equally difficult for so many of you who have had to do something similar with an elderly parent or relative. Conflicted as to whether my mother could continue to stay in her own apartment with home care aides vs. moving her to skilled nursing led me to ask one of the nurse practitioners, who knows my mom well, if we were doing the right thing. After explaining all the reasons why my mother required more care than she could receive in her own apartment, she concluded by saying: “Your mother knows what she wants, but she doesn’t know what she needs.” That remark impacted me on two fronts.

First, it clarified that the decision to move my mother was the correct one and that it obviously couldn’t be left for my mother to decide. My brother and I had to make that call in our mother’s best interest.

Second, the remark resonates with me because it also relates to what we do for our clients. In fact, there are times when what a client wants directly conflicts with what we think a client needs. When that happens, it poses an interesting dilemma: How to maintain an ongoing relationship when the advisor and client’s viewpoints don’t align? 

Because we try to manage client portfolios without emotion, dramatic market moves, as we’ve seen in 2020 (and 2008-09, 2000-2001…), minimally impact our portfolio management strategy. In fact, significant market downturns offer two opportunities, neither of which involves sheltering cash and seeking safety: (1) The opportunity to rebalance a portfolio, which is that old buy low and sell high thing that everyone loves to talk about but finds so difficult to actually do; and (2) The chance to sell assets that have substantially gone down in value and book losses that can be used to offset taxes. (Regarding the latter, as many clients already know, this is a strategy that entails selling an investment in a taxable account that has dropped in value and buying another investment that offers comparable exposure to the same or a similar asset class. Booking a loss on the investment that dropped in value can be used by the client in the current or future tax year to reduce his/her tax obligations. Let’s just say that most accountants appreciate this tactic.)

Research1,2 shows that both of these actions are likely exactly what clients need (but may not necessarily want) at that moment in time. When the stock market goes into free fall, it’s logical to seek safety. It’s rational behavior to want to stop the losses, and to move to the sidelines until things stabilize. Unfortunately, acting on those instincts may negatively impact the probability that a client’s financial plan will be successful over the balance of his/her/their lifetime.

When you spend your whole life earning and saving money, the decision to stay invested in the stock market, or even to buy more equities, may not be what you want. But even in the midst of a market meltdown, it’s probably exactly what you need.




1 “Putting a Value on Your Value: Quantifying Advisor's Alpha.” Vanguard, 19 Aug. 2019.
2 Daryanani, Gobind. “Opportunistic Rebalancing: A New Paradigm for Wealth Managers.” Journal of Financial Planning, Jan. 2008.
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