Question:
It makes me crazy to be losing money in mutual funds and paying fees to fund managers who did nothing to preserve my wealth. I want to take your advice and get better diversification for my investments. But I really don’t want to sell at this point and lock in my losses. I’m waiting for the summer rally, which may be starting now, before I sell. Your advice would be appreciated.
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MARK METCALF:
While I understand your desire to sell your funds at higher prices before you invest in a new portfolio, this sometimes leads you onto what financial advisors lovingly refer to as the road to insanity.  For starters, consider that if a “summer rally” boosts the value of your current holdings, the same rally is very likely to raise the prices of what you want to buy. This might become about as productive as a cat chasing its tail.

What often happens is things start to recover, and then it gets tougher and tougher to sell because it seems like the trend is going to continue and you want to stay on that train.  At the same time you may become increasingly reluctant to invest in the new portfolio out of fear that you could experience a market reversal right out of the gate.  And if the market did turn downward, the process could start once again. No fun. No peace of mind.

Fortunately, there is a relatively simple way to help you get off this emotional rollercoaster.  Make the decision to make the right choices, then just do it. Even if you could micro-manage the prices at which you bought and sold, any benefit would be insignificant in the long run. Your trades and transfers can often be handled in a day or two, depending on where your assets are and where they’re going. At most, it could take a few weeks.

Granted, you may be selling at distressed prices. But you’ll be buying at distressed prices, too.  You’re simply making a swap with minimal time out of the market.  If this results in a better long-term allocation of your assets, then I think it makes good sense to do this now … and get off that old road to insanity.

PS: Mutual fund managers aren’t accountable for preserving your wealth. That is your job. The way to do it is with exactly the kind of diversified asset allocation you are contemplating.

Mark Metcalf is a financial advisor for Merriman