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Sather Financial Group

120 E Constitution St
Victoria, TX 77901

(361) 570-1800


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Investor's Remorse

Four years ago, a client came to us frustrated with CD interest rates. "Andie" wanted an investment alternative with better opportunities. It was early 2008 and the stock market was strong, while interest rates continued to drop. 

Now Andie has come back to us questioning what happened. With the stock market down 5 percent since we started working for her, Andie observed that she would have been better off had she just invested in CD's.

Although her account outperformed the stock market, CD's would have performed better, and with less volatility.

Now, she has "investor's remorse" wishing she had stuck her money in a CD. Despite the remorse, it led to a very constructive conversation that is good for all investors.

First, hindsight is 20/20. If you are always looking backward, you will fail to see the future and you will constantly second-guess yourself. Your investment advisor does not possess clairvoyance. No matter how good an advisor is, they are not perfect. Expecting perfection after the fact will make for a less than productive relationship.

Secondly, when we start a new investment relationship, we ask a series of questions to determine where a client is and where they are going.

In this particular case, Andie wanted better returns than those offered by a CD. To achieve higher returns, we explained that she needed a longer time frame - much longer.

Whether for ourselves, or any client, we fully acknowledge that we have no idea what will happen in the stock market over any short period of time. If we invest in the stock market, we do so knowing we must leave funds invested for at least 10 years in hopes of achieving the desired results.

Additionally, the stock market is a bumpy ride - often very bumpy. Many investors think they can handle volatility - until it shows up. Often, we over-estimate our ability to handle stress and remain calm in the face of adversity. Any time you look for returns that are greater than a CD or Treasury, you will incur volatility of some sort - it is a guaranteed trade-off.

Over the last many decades, the stock market has averaged about 10 percent per year - but it has lost as much as 37 percent in just one year and gained as much as 56 percent in a single year. That is extreme volatility. Investing in assets of this nature will be volatile, and you cannot panic mid-stream. Also, you must be prepared to underperform other assets during short periods of comparison.

As Andie and I talked, we moved on to the future. It is natural for Andie to be frustrated that her investment has not worked out as she may have hoped so far. However, I reminded her that she also needed to consider what the future looks like.

If Andie abandons her 10-year plan and chases after a "safe" investment, she is looking at interest of 0.75 percent on a five-year US Treasury or 1.89 percent on a 10-year Treasury. She will also pay taxes on the meager interest she earns. Factoring in inflation, she would be guaranteed negative real rates of return. All of a sudden, the "safe" investment does not seem so safe going forward.

With six years left in her 10-year plan, it is good for Andie and all investors to be asking these questions. The only dumb question is the one not asked.

That said, the stock market is not for everyone, but tucking your funds under the mattress has consequences, too.

However, no matter where you invest your funds, you must know your goals, identify your timeline and be honest about your ability to withstand volatility.

Dave Sather is a Victoria Certified Financial Planner and owner of Sather Financial Group. His column, Money Matters, publishes every other week.

Originally published Tuesday , January 31, 2012 

Victoria Advocate