Photo: Bloomberg TV
In 2010, Howard Stern went on a rant about how the stock market was like a casino and how he was wiped out when Sirius XM shares collapsed in 2007 and 2008.But money manager Barry Ritholtz has one question: “WhoTF is giving Howard Stern financial advice?”
To better prepare investors like Stern, Ritholtz is out with a 10 step guide to deal with financial advisors. The list is for both high net worth individuals and smaller retail investors.
This is what Ritholtz thinks you need to know.
1. Societies, economies and markets move in long cycles:
There have been a number of bull and bear markets over the past century, but most of the time the markets move in lengthy, decade or more long cycles. It is important to understand the cycles, why they happened, and that the market works this way in order to be a successful investor.
2. Long term doesn’t matter if you are in the middle of a bear market:
The goal during bear markets, as Ritholtz says, is to reduce risk and carry more cash and bonds. Wait for times to improve and be patient. Sitting invested in equities as you would be during a bull market is a good way to lose money during a market downturn.
3. Ignore pretty charts in marketing materials:
The marketing materials offered by companies are usually pretty silly. The pamphlet with happy elderly couples or a sail boat in the background lures in many, but there is hardly any backbone behind the advertisements.
4. Your advisor should help to educate you:
Although you are likely going to a financial advisor because you do not understand the market well enough to put your money into it and handle it yourself, the advisor should help you understand the financial world and how it works. This will give you much more confidence in your investments and prepare you better for the future.
5. Buy and hold is for secular bull, not bear markets:
Similar to the second bullet, buying and holding is not the recommended path during bear markets. If you buy and hold and lose for a decade, frustrations mount and poor decisions are subsequently made. Save that strategy for when the market is up.