How Come My Portfolio Did Not Rebound With the Market?

Retirees and other retail investors who lose money in the stock market often don’t know where to turn to.  In fact, many people are often surprised to learn that they can recover their investment losses, but this realization is often delayed or completely obscured by our understanding of the markets being informed by two competing views.  On the one hand, the daily news feed of a fluctuating market conditions us to believe that putting our hard-earned savings in the stock market has its risks, no different from a casino, so “buyer beware.”  On the other hand, investment banks and brokerage firms pump out a steady diet of ads that lead us to believe that their financial advisers can guide us with our investment choices to help manage the risks, and safely plan for our retirement years.

For the average investor, it is difficult to know whether one is truly receiving sound investment advice.  A booming market can often hide the flaws in a poorly constructed investment portfolio.  Flaws in investment strategy usually don’t reveal themselves until the markets show some extreme volatility.  We are seeing this of late in the wake of the Coronavirus fallout — the market goes down by a thousand points one morning, only to swing up by a thousand points the same afternoon.  This leads many investors to ask a logical question:  If the market went down by a certain amount and then recovered by the same amount or more, how come my portfolio did not rebound in kind?  Diagnosing what went wrong with your portfolio can be a challenge for the average person, and financial advisers and firms will be quick to distance themselves from any responsibility, often blaming the market and then encouraging you to just hold on.

It is our human instinct to trust the financial professionals whom we have built a relationship with over the years.  In a bull market, that relationship and bond of trust likely only grew stronger.  So we are reluctant to burn a bridge and walk away from a bad adviser, who in some cases may have given you tickets for a sporting event or improperly befriended you (it is a business relationship and your broker should not rely on your friendship).

Losing one’s retirement savings can also conjure feelings of embarrassment, leading some investors to do nothing, mainly because they would rather hide the losses from friends and family.  The investor delays, or completely avoids, reaching out for help or getting a second opinion.  That “buyer beware” message from the daily news feed can also prevent us from taking action, reinforcing a message of self-blame – if the stock market is nothing more than a casino, then I should have known better.  That is what your financial adviser and firm will want you to believe; that it is just the nature of the markets.

Sometimes the market is to blame for a portfolio-gone-wrong.  But more often the culprits are things like margin debt, over-concentration in one sector of the economy, or investment products that were unsuitable for your investment objectives or risk appetite.  Some investors find themselves unable to exit sinking investments because they discover, usually too late, that the product they were sold is illiquid and cannot be resold in the stock market.

Privately sold investments, like non-traded Real Estate Investment Trusts (REITs), are just one example of illiquid products that might especially be vulnerable in this pandemic era, where millions of people filing for unemployment will foreseeably have difficulty making their rent payments next month.  With “stay at home” orders across the country, many small businesses will also find it hard to survive and will default on their rents.   The success of a REIT completely depends on people and businesses being able to pay their rents, thus the true fallout for investors holding on to non-traded REITs may be a disaster that will reveal itself in short time.

If you have suffered investment losses in this currently volatile market, or if you are holding on to investments that are illiquid and which you are unable to sell, it is important to have a legal professional review your case and financial statements.  For twenty years, Malecki Law and team of New York securities attorneys has helped investors and retirees recover investment losses resulting from poor investment recommendations.  Call us for a free consultation.

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