A common theme among investors who get poor returns over the long run is that they change their investment approach whenever stocks drop sharply. This applies to those who pick their own stocks, ETFs, or mutual funds, but I see it more often with those who work with financial advisors.
It is inevitable that stock markets will occasionally drop 20% or more. We can’t predict when this will happen, but it will keep happening. It’s not your fault or your financial advisor’s fault. It’s not realistic to think you or your advisor should have seen it coming. It makes no sense to change investment strategies or advisors over something we can’t control.
When I hear about an investor changing strategies, sometimes the reason makes sense. For example, seeking lower fees or better advice or both. But too often I hear an investor complain about losses with a previous advisor and deciding to switch to a new advisor. Usually, the losses come from the whole stock market dropping rather than something the advisor did wrong. These investors are destined to bounce from one advisor to another every time the stock market drops and pay huge fees the whole way.
When you place some fraction of your savings into stocks, keep the following in mind. It is inevitable that their price will have a gut-wrenching drop at some point. There is no point in hoping it won’t happen. On average, stocks go up over time, but they drop sometimes. Get used to this idea or reconsider your asset allocation.