New Rule to Make Advisors Communicate Every 10% Loss to Clients
OK, this is a story out of Europe and does not apply to the US. However, it is an illustration of one of the biggest mistakes that investors make. Starting next year, financial advisors in Europe are to communicate to clients every time an account declines by 10%. Then, if the market drops another 10%, they are to inform them again. The stupidity of regulators. They already do inform them. It is called monthly statements. Communication can't get much more regular when the investment company is sending out 12 messages a year.
Why do regulators feel that this rule makes sense? If I had to guess, it would be because investors don't pay attention and they think that there is not enough transparency. This has always been a big problem. Investors have a tendency to ignore what is happening in their account. A key predictor of success is to be able to interpret (without emotion) what you are seeing in your investment account whether that is a loss or a gain.
To be successful long-term, it is important that you follow the following 5 step plan.
1) Know your retirement goals - when and how much a month you will need
2) Know where you have to be in total investments at the end of the month to reach those goals.
3) Have a Plan A when the market is going up and a Plan B when the market is going down
4) Know at what point you change from Plan A to Plan B
5) If you do change from Plan A to Plan B make sure you have a game plan in place that will enable you to get back to Plan A
Having a plan is the answer. The # 1 reason people get stressed about their investments is that they have no idea if they are on the right path for retirement. If you can interpret your results based on your goals, then you can make more effective (non-emotional) decisions about your future.