I Can’t Protect you from Yourself

Remember way back on Monday? You know, when stocks fell by almost 2%, fulfilling the definition of a “correction”. It was on that day that “Jack” called the office and calmly directed us to liquidate all of the securities in his account. After begging and pleading for him not to take any action, he said, “I just do not want to lose any money. I know that I will probably regret it, but I just have to do it.”

There are times in my job when I just can’t protect people from themselves. Maybe the stock market will fall back to Monday’s lows, but on Tuesday, stocks recovered almost all of Monday’s losses. Then yesterday, the bulls ran wild on hopes for a rate cut, a recovery in the battered financial sector and sinking oil prices.

The Dow Jones Industrial Average surged 331.01 points, or 2.6%, to 13289.45. All 30 of its components ended the day higher, as the index enjoyed its second-biggest point gain of the year. The Dow's gains yesterday capped a two-day rally of more than 540 points -- the best two-day performance since October 2002. The broader indexes joined in the fun: the S&P 500 advanced 40.79, or 2.9%, to 1469.02, and the Nasdaq Composite Index jumped 82.11, or 3.2%, to 2662.91.

What can I possibly say to Jack now? That I am sorry that he couldn’t be reasoned with? That if he just let us do our job and manage his money proactively, we would prevent him from letting his emotions get the best of him? Jack can not afford to sit in cash for the balance of his retirement-he needs to grow his money to outpace inflation. Not only that, but the biggest problem with making a rash decision like selling every asset you own is that even if you are right for a day, a week or a month, what will make you want to get back in?

I know that market volatility can be difficult to absorb, especially when you are retired and need your nest egg. But Jack knew that he had a balanced portfolio, which could withstand far more grief than what we have seen this year. Somehow that didn’t matter in the heat of the moment and now, Jack is faced with a terrible decision: either admit that he made a mistake and get back into the market or significantly reduce his spending while he sits in a money market account. Those choices seem pretty stinky to me, but sometimes no matter how hard I try, I just can’t save some investors from themselves.