Investing while in a Coma

As advisors we can get frustrated with our clients when we know that they are making the wrong decisions at the wrong times. Sometimes the most important part of my job is saving people from themselves.

I would like to demonstrate my point with a story of fiction, based on actual data:

Many years ago there were 3 friends named Chris, Bob and Alfred. They decided to each invest $100,000 with me at Precision Wealth Management. They all had similar risk profiles, so I placed them in the Precision Wealth Balanced Growth Portfolio. This portfolio had a great track record with low fees and would give them approximately 60% exposure to global stocks and 40% exposure to bonds.

They made their investment on January 1, 2006 and made a pact that they would invest for the long term and not touch their accounts for at least 10 years. Their accounts faired well and by December 2007 their accounts were each worth $117,220. Unfortunately, Bob was critically injured in a car accident in March 2008 and ended up in a coma. By August 2008 the accounts began to decline as the financial crises set in. In January 2009 their accounts were now only each worth $91,533. Chris and Alfred began to panic and started losing faith in the stock market. They were concerned that their investments would continue to decline, I advised them to stay the course and not make any rash decisions. They ignored my advice and withdrew their accounts placing their cash in a 3 year GIC making 2.2% per year. Unfortunately, they could not cash Bob’s account as they did not have Power of Attorney. They felt that they were deserting Bob and felt bad that he had to remain in this investment. By March of 2009 the markets started to recover. In January 2011 when their GICs matured they asked what their accounts would be worth if they had stayed the course, I looked at Bob’s account and it was now worth $127,507. Their GICs were worth $97,708 with the accumulated 3 years of interest. Chris decided to go back into the investment and Alfred decided to stay in GICs.

Thirteen years from the initial invest date in 2006 Bob’s account is worth $249,429, Chris’s account is worth $193,396 and Alfred’s account is worth $116,288. Bob’s account is currently worth $56,033 more than Chris and $133,141 more than Alfred’s account. Just last week Bob came out of his coma and Chris and Alfred went to visit him in hospital. Chris and Alfred told Bob the story of what had happened with the markets and what their accounts were worth today. Bob looked at them and said “seems like investing in a coma is the best strategy.” Needless to say Chris and Alfred were embarrassed.

The moral of the story is not to make any investment decisions based on short term volatility—trust your advisor and trust the process.