I’m 62 and just realized my portfolio has been 100% in bonds – how did this happen?

Meet Bob, a 62-year-old retiree who just discovered that his financial advisor has had his entire portfolio invested in bonds for the past few years. While Bob assumed that his advisor was managing his portfolio with a long-term strategy in mind, he now realizes that he missed out on the significant gains in the stock market during one of the longest bull runs in history. Bob wasn’t planning to touch this money for many years, and now he’s wondering if his advisor truly understood his goals and time horizon.

Bob’s experience raises an important issue: when you’re in retirement but still have a long-term horizon, staying too conservative with your investments can be just as risky as being too aggressive. Here’s how Bob—and others in a similar position—can assess their situation and take steps to move forward with confidence.

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1. The Importance of Understanding Goals and Time Horizon

One of the fundamental responsibilities of a financial advisor is to fully understand a client’s goals and time horizon. In Bob’s case, while he’s already retired, the money in his portfolio was earmarked for long-term growth—something he didn’t plan on touching for several years, possibly even decades. For someone who could easily have 30 or more years ahead of them in retirement, having 100% of his portfolio in bonds is overly conservative.

A good financial advisor should likely have understood that Bob’s time horizon allowed for a more balanced or even growth-oriented approach. While bonds provide safety and reduce volatility, they also tend to offer lower returns compared to stocks. Over a long time horizon, this could mean Bob’s portfolio underperforms, making it more difficult for his investments to grow and outpace inflation.

2. The Risk of Being Too Conservative

While avoiding the stock market’s volatility might seem like a safe move, the risk of being too conservative is real. By focusing entirely on bonds, Bob may have shielded himself from market downturns, but he also missed out on the potential for higher returns during the bull market. With inflation rising and the potential for a long retirement ahead, the lower returns from bonds may not be enough to sustain his future spending needs.

When you have 20 to 30 years or more to live, a balanced portfolio that includes equities is essential for growth. Stocks tend to outperform bonds over the long term, and without some exposure to the stock market, Bob’s portfolio might not grow enough to support his retirement lifestyle. In fact, by focusing only on bonds, he’s exposed to the risk that his purchasing power could diminish over time, especially if inflation accelerates.

3. Addressing the Problem with His Current Advisor

Bob needs to have a conversation with his current advisor to understand how and why the decision was made to allocate 100% of his portfolio to bonds. A good financial advisor should have communicated clearly about Bob’s investment strategy and explained why certain decisions were made. If Bob’s advisor failed to explain this strategy—or didn’t adjust his investments based on Bob’s goals and time horizon—it’s a red flag that the advisor wasn’t fully aligned with his best interests.

During this conversation, Bob can ask:

• What was the rationale behind the 100% bond allocation?
• Why wasn’t a more balanced approach taken, given my long-term goals?
• How does this strategy align with my risk tolerance and need for growth?

If Bob isn’t satisfied with the responses or feels like his advisor failed to properly manage his portfolio, it may be time to consider moving on.

4. How to Leave His Current Advisor Respectfully

If Bob decides that his current advisor isn’t the right fit, he should plan his exit thoughtfully and respectfully. Here are a few steps he can take to leave his advisor and find a new one:

• Communicate Clearly: Bob should reach out to his advisor and explain why he feels it’s time to move on. He can politely mention that his goals and risk tolerance may not have been properly understood and that he’s looking for an advisor who aligns better with his long-term vision.
• Get All the Necessary Documents: Before moving on, Bob should ensure he has all the documentation related to his portfolio and investments. This includes statements, tax forms, and any contractual agreements with the advisor.
• Transfer Assets Gradually: Depending on where his investments are held, Bob may need to coordinate the transfer of his assets to another brokerage firm or financial institution. He should work with the new advisor or firm to ensure a smooth transition without penalties or disruptions.

5. Finding a New Advisor Who Understands His Goals

When looking for a new financial advisor, Bob should focus on finding someone who aligns with his goals and time horizon. Here’s what he should look for:

• Fiduciary Duty: It’s crucial for Bob to choose a fiduciary financial advisor. Fiduciaries are legally required to act in their client’s best interest, which ensures that the advice they give is unbiased and focused on Bob’s needs, not their commissions.
• Certified Financial Planner (CFP): A CFP has undergone rigorous training and is held to high ethical standards. This certification is a good indicator that the advisor will be able to provide comprehensive and strategic financial planning.
• Clear Communication on Risk Tolerance and Goals: Bob should ensure that any new advisor takes the time to understand his long-term goals and his risk tolerance. This will likely involve completing a risk assessment and having multiple discussions about how the advisor plans to balance growth with stability.
• Track Record of Transparent Investment Strategies: Bob should ask potential advisors how they handle portfolio allocation and how they’ve navigated past market cycles. He should look for someone who can offer clear, data-backed strategies and isn’t afraid to make adjustments based on evolving market conditions or client needs.

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