Monday, February 6, 2023 Feb 6, 2023
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Financial Services

How To Miss a Bull Market

A cautionary tale about ignorance and complacency in financial planning.
By Tim Rogers |
Illustration by Phil Foster

This is all terribly personal and embarrassing, so let me tell you what I can share about our main character, that hapless soul, without violating his trust. He is approaching his 50th birthday, which seems impossible to him. He has been married for 23 years to an industrious woman who has borne two beautiful children. One attends a state university with a porcine mascot, and the other is an eighth-grader at a Dallas private school. His wife owns a thriving small business. He is the editor of a respected magazine whose subscribers have an audit-verified median household income of $340,000.

When they got married, he and his wife were directed to a financial planner whom they implicitly trusted because the planner had worked for a family member. One bit of advice he remembers receiving early on was that fretting over his 401(k) statements and the like would be a waste of time, because growing one’s net worth takes time, and he had lots of it. There would be fluctuations. No matter. He and his industrious wife should just keep plugging away, spending less than they earned, putting aside what they could. That is what they did.

2008 came and went without destroying the couple, mainly because they didn’t have all that much to destroy. The planner performed valuable services, to be sure, buying life insurance policies, establishing 529 plans for the kids’ educations. All along, the planner reminded his clients that his was a conservative approach. There would be no outsize returns, but neither would there be catastrophic losses.

Then one day earlier this year, our main character and his wife went to visit their planner for their annual check-in. By that point, the planner had hired a junior associate at the firm who had assumed the advisory role once played by the planner, presumably because our main character’s meager accounts no longer merited the attention of the man whose name was etched on the firm’s glass door. But, hey, our main character knew that journalism, in most cases, wasn’t a path to riches. The junior associate reviewed the numbers, which he projected onto an impressively large screen in a conference room. “If we assume a 9 percent annual return,” said the junior associate, “here’s what you can expect when you retire. You’re on track.”

This was how the check-ins always went. Everything always looked on track. Our main character, painfully aware of his own financial ignorance, would mostly just nod and agree that, yes, it would be nice if he could put more money aside, but the house needed a new roof and so on and so forth. And wasn’t that why he was annually paying 1.5 percent of assets under management? To have the planner or at least the planner’s junior associate worry about his money and tell him if things weren’t on track?

That day, though, for reasons too tedious to detail, our main character was rather tired. He hadn’t slept well in days. And his fatigue, frankly, made him feel almost drunk. He couldn’t hold his tongue. “Hang on a sec,” he interrupted. “This is all based on a 9 percent return? That’s pretty damn optimistic.” Even he knew that. “Instead of 9 percent, let’s instead assume the return you’ve generated for the past five years. What’s that number?”

There came from the junior associate some stammering and fumbling with the keyboard but no quick answer. The junior associate admitted, though, that the number would be lower than 9 percent, and he mentioned that the firm would be making some changes in the coming weeks. They would be “partnering” with a group in Omaha that would offer “access to lower-cost investment options.”

That was when our main character began to feel the pit in his stomach. Why hadn’t the meeting begun with the news about the “partnership”? How could his future be on track if it required a 9 percent return? These were some of the questions he posed to the planner when he got him on the phone days later. The planner said, “I wish I would have done better. It wasn’t for lack of trying. We didn’t try to do bad.” He repeated that last phrase several times. “We didn’t try to do bad.” The poor grammar made it even harder for our main character to stomach the truth: he’d missed the longest bull market he’d likely ever see, the longest since the Great Depression. And he’d overpaid his planner to do it.

From 2010 to that point, net of fees, his planner had gotten him 3.54 percent annualized. For comparison, the S&P 500 over the same period, with dividends reinvested, was up nearly 13 percent annualized. To put that in painful perspective, his portfolio was up a tad over 40 percent, whereas the S&P had tripled. Not that one would ever put all one’s money in the S&P. But still.

At one point, our main character had his 401(k) in one of those automatically rebalancing John Hancock funds whose mix is determined by retirement year. The planner had said, “I can do better than that.” The result: over the past five years, the planner had managed .53 percent. The John Hancock fund did about 4.5 percent.

The kicker to this story is that when our main character fired the planner, he discovered that some of his money was invested in leveraged exchange-traded funds. The planner was using debt in an effort to increase returns. Not exactly a conservative strategy.

Our main character has come to terms with this loss—or lost opportunity. He still has his health, if not his hair. He’ll be able to earn something resembling a living as long as he can drag himself to a computer and keep his fingers moving. Which, barring a second marriage to a wealthy widow, is exactly what he’ll have to do.

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