We’re retired and recently lost $100K from our portfolio. Our adviser said ‘we could lose another $100K in 2023.’ Is that crazy? 

Question: I retired in October 2016 and my wife retired in January 2018. We had a pretty nice next egg saved up at that time, so we had our financial guy take over our accounts to help them grow. By January of 2022, we had over $500,000 saved and we had not pulled any of this money out at all. Fast forward to around October 2022, we watch the stock market do its roller coaster thing and check our totals every month and mark it in a ledger. We noticed our 401(k) had lost in the neighborhood of $100,000 since the end of 2021. 

I contacted the investment firm we use and they set up a telephone meeting with a couple of the investment advisors. All I wanted to know is why our retirement account had lost nearly 25% because I had the understanding that since they had control of our investments, it would be monitored and investments would change to keep this from happening. By the end of this meeting, one of the advisors commented that we could lose another $100,000 in 2023. Since the end of 2022, our retirement account has grown by about $9,000. Should we swallow our losses and go to another investment company or stick it out with our current one? (Looking for a new financial adviser? This tool can match you to an adviser who meets your needs.)

Answer: We’re sorry to hear that your account has experienced this loss. Let’s look at how your adviser handled the situation, whether that loss was par for the course in a tough market, and whether you should ditch your financial adviser. (Looking for a new financial adviser? This tool can match you to an adviser who meets your needs.)

From what you’ve described, it seems like your adviser may be approaching your situation too casually (mentioning a $100,000 loss seemingly off-handedly isn’t great) and may lack key communication skills. Indeed, certified financial planner Matt Bacon at Carmichael Hill & Associates, says the adviser might have been “flippant and tactless or blasé” which “isn’t great,” though he adds that “empathy and tone matter, but so does honesty.”

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For his part, certified financial planner Robert Persichitte at Delagify Financial says, “I probably wouldn’t use the word ‘lose’ in a client meeting, instead, I’d emphasize that the account value might go down by $100,000 in the short term.” But he adds that he would “not hesitate to put a downside dollar figure with an aggressive position” as SEC rules require you to disclose risks to clients and “it makes for better client relationships.”

In short, your adviser has some communication issues and that is a pretty big problem. That said, certified financial planner Cristina Guglielmetti at Future Perfect says a 25% drop is roughly in line with how the market did last year — that is, if you’re in agreement with your adviser about how the money should be handled. Because you’re retired, some experts argue that your adviser should have nudged a more conservative approach, or at the very least shared with you that you were invested decently aggressively.

The key to success is that everyone, including investment advisers and their clients are on the same page about risks and goals. “In this case, the advice may or may not be good, but it was poorly communicated. If you chose an aggressive investment strategy, these returns seem reasonable,” says Persichitte.

You also noted that you thought that since they controlled your investments, they would keep losses from happening. Ask yourself: “Was that an assumption you made or did your adviser indicate that this would be possible? More importantly, what conversations happened between you and your adviser about appropriate asset allocation and your risk tolerance? Did you indicate that you wanted a conservative approach and understand that you’d likely be foregoing long-term gains in exchange for that stability,” says Guglielmetti. (Looking for a new financial adviser? This tool can match you to an adviser who meets your needs.)

In short, the one big thing to take issue with is that it does not seem your adviser communicated effectively with you about the fact that your portfolio could sustain a loss of this size. Indeed, when managing investments, advisers have (at least) two jobs. First, they need to make informed choices about investment strategy. Second, they need to educate their client about the strategy’s possible outcomes, including risks and benefits, says Persichitte. 

It may be that the allocation was too aggressive — hence your big loss — and it may be worth consulting a few other planners to weigh in with their professional opinion before switching advisers, says Bacon. Fortunately, you can do this with a free consultation as many advisers offer a complimentary call or meeting.  “The market went through a terrible year and bad performance alone isn’t usually worth changing advisers, but inappropriate funds or an imprudent strategy given the clients’ goals could be,” says Bacon.

If your adviser cannot adequately explain the benefits and risks of a strategy, Persichitte says it’s time to work with someone else. “The new adviser might recommend the same investment strategy, but if they can explain the risks and get the client’s informed consent, the client will be in a better position,” says Perischitte. 

Meanwhile, certified financial planner James Daniel at The Advisory Firm in Alpharetta, Georgia, says his recommendation is to have a sit down meeting with your current advisers to get a better understanding of their approach. “Are they making the investment decisions or is your portfolio part of an overall firm model? Do they also have safeguards in place to limit drawdowns,” says Daniel.

Know this too: it’s possible you may not have a loss at all, assuming your money is still invested. “You’ll only realize a loss if the investments in your account are sold for less than the basis. Be cautious about selling any of your investments and locking in a potential loss,” says certified financial planner Mark Humphries at Sentinel Financial Planning. (Looking for a new financial adviser? This tool can match you to an advisor who meets your needs.)

For his part, certified financial planner Alonso Rodriguez Segarra at Advise Financial says 2022 was the seventh worst year in results since 1926 for the S&P 500. “Remember, in the stock market you only lose when you sell and you always win something because stocks and bonds pay you dividends and interest. Don’t look so many times at your portfolio balance as that will stress you out and the markets have shown that they recover over time,” says Segarra.

Should you decide to switch advisers, be clear about your expectations and get a good understanding of the new adviser’s investment philosophy to ensure you’ll know what’s happening. “If both advisers have similar approaches, it’s unlikely the outcome will be very different,” says Guglielmetti.

Have an issue with your financial adviser or looking to hire a new one? Email [email protected].

Questions edited for brevity and clarity.