When and How to Talk to Your Advisor About Changing Your Investment Objective

Every once in a while, life throws a curve ball. You’ve set up your investment portfolio in partnership with your advisor, and suddenly, it doesn’t seem like it works for you any longer. Maybe the value is declining even when the market goes up, or maybe it’s behaving well from year to year but giving you fits from month to month. Maybe you received an inheritance, or you lost a job.

These can all be reasons to change your investment mix. Here are several other perfectly legitimate reasons to make a change:

  1. You decide to help support family members
  2. You have inherited money and want to pass along more to your own heirs
  3. The market tanks and you lose sleep
  4. The market rises a lot and you’ve reached your monetary goals, so you can afford to give up return and make your portfolio less risky
  5. You go back to work

On the other hand, here are some reasons that are usually not sufficient to prompt a change in asset mix or holdings, given historical data:

  1. Political trends
  2. Tax law changes
  3. Lawsuits at a company that you own stock in

Reasons for changing your portfolio generally fall into two categories: either the return burden on your portfolio increases or declines (ie, if you want to support family, that may require more return; but if you inherit funds, each dollar can work a little less hard) – or, the way you FEEL about your circumstances changes.

Investment managers prefer to keep portfolios positioned as consistently as possible. Making large changes frequently is a good way to damage your return. Missing one large upward move in stocks can permanently impair your lifestyle, forcing you to save more and sacrifice more. It’s one thing if you are prepared for that sacrifice and understand its implications. It’s another thing if you incur the damage, then decide you can’t stand the consequences and want another shift. That’s a sign that either you or your advisor hasn’t done the work to establish your goals and the path to achieving them.

Approach your advisor with the reasons you want a shift. Understand that your advisor is always working to translate your circumstances into a risk/return profile that will fit you, so when you say, “This market drives me nuts, I can’t sleep!”, he is thinking “less risk” or if you say “I just received an inheritance and I think I want to keep some of it in cash” he is thinking “maybe the remaining portfolio can be more risky?”

Once you decide on a change, try to stick to the resulting portfolio for a few years – let it work for your new goals. If the market moves against you – seeming to invalidate your new direction – remember the reasons you shifted in the first place. Are those things still true? If so, stand your ground and don’t be afraid to ask for assurance from your advisor. That’s what he’s there for.