Ill-advised portfolio move
Question: Reading recent articles in newspapers regarding the investment outlook for this year, it would seem that it may be prudent to invest new money into bond mutual funds or fixed income funds.
As I am retiring this year (at age 63), I intend to do that with my available RRSP contributions this year but am also tempted to switch existing money from a ‘wrap’ fund which I think is too high a risk for my age and retirement. I now realize that this was an ill-advised move by my financial advisor who switched the money from a growth/income fund to this new fund with no financial history. The fund lost 34% last year. I know you should not sell low but the fund continues to lose and I don’t think I have the time to recoup the losses and, therefore, feel I should get out now and not take a chance for it to go lower.
I know you don’t advise people, but I am asking the question if in your opinion there are circumstances during which you should sell and take your losses. I must say that I have learned a valuable lesson in that one should not just put money into a mutual fund company and let someone else take complete control without actively participating in e investing decision based on knowledge of various fund types and risk levels.
I am gaining that knowledge through reading various books, newspapers, etc. and this year I am using your book on RRIFs to make my own decision regarding my future investments. – E.K.
Yes, there are certainly times to sell – but not just because an asset has lost money. The times to sell are to lock in a gain, or because a company has issued some bad news, or because you need the cash.
Given your age, a balanced, low-risk portfolio should certainly be the preferred choice and you should have some serious discussions with your financial advisor (and perhaps his or her supervisor) about what has happened.
At this point, we have seen a recent market rally so you may have recovered some of your losses. You should tell the advisor to gradually reposition the portfolio to better meet your needs – and this should certainly include some fixed-income securities. – G.P.