Bad Advice. Can I do anything?

eskbanker

bobdisk said:

Bad Advice. Can I do anything?

If you were advised (and accepted) that investment values can and do fluctuate, then in what sense was the advice bad?

Reducing investment values don't inherently signify bad advice if that's what you're suggesting, but, for example, when you went through the upfront fact-finding analysis with the adviser, what was said (and documented) about when the money would be needed in the future?  To what extent was risk discussed?

bobdisk

eskbanker said:

bobdisk said:

Bad Advice. Can I do anything?

If you were advised (and accepted) that investment values can and do fluctuate, then in what sense was the advice bad?

Reducing investment values don't inherently signify bad advice if that's what you're suggesting, but, for example, when you went through the upfront fact-finding analysis with the adviser, what was said (and documented) about when the money would be needed in the future?  To what extent was risk discussed?

I did not think that the amounts of loss would be so large over such a short period

masonic

bobdisk said:

eskbanker said:

bobdisk said:

Bad Advice. Can I do anything?

If you were advised (and accepted) that investment values can and do fluctuate, then in what sense was the advice bad?

Reducing investment values don't inherently signify bad advice if that's what you're suggesting, but, for example, when you went through the upfront fact-finding analysis with the adviser, what was said (and documented) about when the money would be needed in the future?  To what extent was risk discussed?

I did not think that the amounts of loss would be so large over such a short period

What difference does it make whether the losses happen over a short period or a long period? Most would prefer the downturns they experience to happen over as short a period as possible, although a longer period gives you more opportunity to buy at cheaper prices.

Albermarle

I did not think that the amounts of loss would be so large over such a short period

It is often seen on this forum, that new investors often say they could withstand losing money for a period, until it happens.....

Regarding time scales, historically/on average if you hold most investments for 8 years, your chance of making a loss is about 5% .

Rollinghome

bobdisk said:

eskbanker said:

bobdisk said:

Bad Advice. Can I do anything?

If you were advised (and accepted) that investment values can and do fluctuate, then in what sense was the advice bad?

Reducing investment values don't inherently signify bad advice if that's what you're suggesting, but, for example, when you went through the upfront fact-finding analysis with the adviser, what was said (and documented) about when the money would be needed in the future?  To what extent was risk discussed?

I did not think that the amounts of loss would be so large over such a short period

That's understandable.  We've had a long run of rising markets since 2008 and many new investors won't have any memory of anything else.  You were unlucky in investing just before the markets turned, before you had a chance to get ahead, and when both equities and bonds fell at the same time.

If it's any consolation, in 2000, my portfolio pretty much halved.  I also had investments in Japan in 1989 when the Nikkei bubble burst and fell from almost 39,000 to around 7,000.   Now 33 years later it's still only at around 27,000, down 30% from the peak.

Despite those setbacks over the years, the markets have been good to me, returning massively more than pure cash would have done.  At the same time, I know it could turn round and bite me at any point. The reason that equities to have a superior return is because they carry a risk. Without it, the return would be similar to cash.  There's no free lunch.

Provided the advisor suggested investments that might be suitable for your situation, then there's unlikely to be any comeback.  If you have been caused real hardship as a result, and the advisor should have known that was likely, then it might be different. 

Nor can anyone reliably tell you where we'll go from here.  All that can be done is to wish you the best of luck and hope it comes good for you. If you're still well off retiring and well diversified, it should be fine.

eskbanker

bobdisk said:

eskbanker said:

bobdisk said:

Bad Advice. Can I do anything?

If you were advised (and accepted) that investment values can and do fluctuate, then in what sense was the advice bad?

Reducing investment values don't inherently signify bad advice if that's what you're suggesting, but, for example, when you went through the upfront fact-finding analysis with the adviser, what was said (and documented) about when the money would be needed in the future?  To what extent was risk discussed?

I did not think that the amounts of loss would be so large over such a short period

That perhaps starts to answer the first question, but not the others.

Your declared losses are less than 15% (albeit probably above 15% by the time today is out....) so far, so if your attitude to risk, as determined by the upfront assessment, was 'medium', that sort of loss over a year is very much within expectations - if it's not within your tolerance then how did you explain your capacity for loss in the discussion with the adviser in order to conclude that medium risk was appropriate?

dunstonh

bobdisk said:

eskbanker said:

bobdisk said:

Bad Advice. Can I do anything?

If you were advised (and accepted) that investment values can and do fluctuate, then in what sense was the advice bad?

Reducing investment values don't inherently signify bad advice if that's what you're suggesting, but, for example, when you went through the upfront fact-finding analysis with the adviser, what was said (and documented) about when the money would be needed in the future?  To what extent was risk discussed?

I did not think that the amounts of loss would be so large over such a short period

Losses nearly always tend to be quick.  Gains tend to take longer.       There are rare events where losses can go over multiple years.  2000,2001,2002 was three negative years in a row.   However, the total loss over those three years was about the same as the loss period in the credit crunch which was a much shorter period of decline.

Rich1976

And this example is exactly why many people should not be invested in the stock market. Pensions aside as we can’t do much about saving for retirement other than the stock market.

but I agree with the original post, it must be disheartening to invest for what appears to be the first time in what is apparently a medium risk fund only to lose 15% of it inside 12 months. 

Had I been new to investing I would have assumed a loss of 15% would be associated with a high risk fund and losses of less than 10% maybe for medium risk. 

Many people just want a better return than cash and if they are new to investing will have no idea of what happens along the way. 

So I do feel sorry for the o/p and to be bombarded with what did you expect, didn’t you realise type of questions isn’t helpful. Because no they clearly didn’t expect big losses and no maybe they didn’t realise because if they have no experience of investing how could they know or have expected this.

Rollinghome

Nebulous2 said:

Rollinghome said:

Nebulous2 said:

Rollinghome said:

Nebulous2 said:

It's certainly gone if you sell. Then you could possibly add another 10% loss on top for inflation over the next year if you are in cash. 

There isn't an easy way out I'm afraid. 

Didn't the adviser discuss the long-term nature of what you were doing, your attitude to risk, and the possibility of fluctuating prices, before you bought? 

Just to be clear. The value of the investment will also have lost a further 10% in real terms too.  It's often very misleadingly suggested on this board that real-terms loss due to inflation magically doesn't apply to equity investments. It does.

To the OP.  That is the nature of investment versus cash savings. The return on investments can never be predicted. All we know is that, historically, equity investments have provided a better return than cash savings over the longer term.  Whether your investments are suitable for you depends on your very specific circumstances, details of which you may not want to put on a public message board.

From the scant details you have given, the advice seems fine, but no one can tell you where your investments will go from here, or when.

I think you may have misread or not understood the bit you have highlighted.  It was projecting forward. You have no idea whether equities will fall behind inflation over the next year or not. Going by the forecasts its very likely that cash will. 

Many investors measure their equity returns net of inflation - and are aiming for a percentage above inflation.  

Precisely. So why did you say "if you are in cash"?   Why "add another 10% loss on top for inflation over the next year if you are in cash" but not for loses on equities.

Whether you are holding cash or equities, the valuation today is worth around 10% less in real terms than it did a year ago.  None of us know whether equities will out-perform cash, or under-perform as they have YTD.  We don't know what the interest rate will be over the coming year nor the return on equities.  We do know that returns from any source are always reduced in real-terms by inflation.

Two possible scenarios:- 

He sells his shares and moves to a cash ISA which is what he proposed. I was saying that if he does that he will lose out by the difference between inflation and what he gets on his cash ISA in the next year. 

He keeps his equities. They could go down further, go up but not as much as inflation, break even or exceed inflation. Over the long-term investors expect to beat inflation, that's why they do it. Over the very long-term, with a diversified portfolio they pretty much always have. 

You then responded by saying:-  "The value of the investment will also have lost a further 10% in real terms too" 

You seem to be agreeing that we cannot predict what the stock market will do - but then you told him he will lose 10% in real terms.  

The bit of yours in bold - no it isn't. If you had £100 in cash and £100 in equities a year ago and still have the same today, then yes both have lost. If you now have £102 in cash and £110 in equities, then your equities have held their own. If you have £115 in equities today, your equities have outperformed inflation. 

Nebulous2 said: "I was saying that if he does that he will lose out by the difference between inflation and what he gets on his cash ISA in the next year."

What you actually said was "Then you could possibly add another 10% loss on top for inflation over the next year if you are in cash ".  I would hope that most people would already grasp that if the rate of interest is less than inflation they would "lose out" - just as I hope you now understand that if you get a lower return than inflation than from investments (or a negative return), you will also "lose out".

If so, that's hunky-dory.

masonic

Rich1976 said:

So I do feel sorry for the o/p and to be bombarded with what did you expect, didn’t you realise type of questions isn’t helpful. Because no they clearly didn’t expect big losses and no maybe they didn’t realise because if they have no experience of investing how could they know or have expected this.

It something their adviser should have discussed with them before any investment was made. It is not as though losses of this magnitude are unusual - a look at a performance chart for the investments during 2020 probably would have shown the potential for a sharp drop of this magnitude. The bare minimum for someone with no experience of investing to understand before agreeing to make an investment is the loss potential and range of possible outcomes envisaged under different conditions. Most advisers would have a conversation about this with their clients. I think some of the comments can be interpreted as genuine surprise that an investment was made without understanding the risks and potential returns.

Rather than being unhelpful, questions around what was expected, why the impact of this loss over this time period is so problematic, and what was actually discussed with the adviser, are essential to providing any useful help.