Just because a brokerage firm has an impressive or well-known name and blankets the airwaves and cyberspace with advertising does not mean that you should trust it with your precious retirement portfolio, says Jeff Voudrie, president of Common Sense Advisors.
One firm that Voudrie singles out for promises that should be interpreted as red flags is Edward D. Jones. The extra danger with EDJ, Voudrie adds, is that it focuses on retirees, the people who are least able to afford disaster with their savings.
“My opinion is that EDJ is especially risky for retired investors because it doesn’t have any risk processes in place to protect the value of an account in a market downturn,” Voudrie, an advisor with more than two decades of experience and three U.S. patents, observes, “and THAT is the biggest risk to a retiree’s livelihood.”
As proof Voudrie quotes from the EDJ website: “We strive to find those that align with our focus on quality investments, work well together in a diversified portfolio and are compatible with our buy-and-hold philosophy.” Voudrie has long opposed such a strategy, advising his clients of the huge risk that buy-and-hold entails.
While having no issue with a statement off the same site of: “We believe a long-term strategy is the best way to build and preserve your financial security,” Voudrie does add this note of caution: “’Buy-and-hold’ doesn’t mean ‘buy and ignore.’ You should review your portfolio at least once a year to make sure you’re still on track to meet your financial goals.”
What Voudrie wants to educate the public about regarding firms that proffer “buy-and-hold” deals is that they expect the average person to monitor his/her portfolio over the long term. That, obviously, begs the question: what exactly are you paying the brokerage firm to do? “If they follow ‘buy-and-hold,’ they aren’t actively making changes to your portfolio; they aren’t taking steps to adjust the risk in your portfolio based on threats or unexpected economic conditions that have taken a sudden shift,” Voudrie says.
Yet, the average retiree is still paying the brokerage firm a fee for “managing” his money plus less-publicized internal fees associated with the funds where your money has been placed. “What precisely are such firms doing to earn their ongoing fees?” Voudrie queries, noting that such fees can exceed 1% per year, every year. “If your chosen firm is not making changes or adjustments, what are you getting for your money?”
With these caveats in mind, Voudrie enumerates the primary reason to avoid firms like EDJ: while firms that subscribe to the “buy-and-hold” school of wealth management may be adequate during the accumulation phase of wealth building, as the average person works and puts aside money for retirement, it can be disastrous during the distribution phase of a person’s life, when he is no longer contributing but taking distributions from his account.
A cursory look at the fortunes of clients who have invested in firms driven by a “buy-and-hold” philosophy reveals that many have lost 50% or more of their money. In times of downturn there is no safety net for those whose money is paralyzed by such a philosophy.
For instance, in one recent span of market turmoil over 15 months from 2009-11, retirees who moved their money to cash and other safe assets did better than those who continued to buy and own stocks. The Congressional Budget Office reported that retirees lost more than $2 trillion during this short period. What happens if market turmoil strikes again and buy-and-hold hostages have to watch their life savings erode without recourse, Voudrie queries.
Researchers and journalists agree on the danger of buy-and-hold when the bottom drops out of the market. As Emily Brandon reported in U.S. News & World Report, “Older workers’ average account balances are markedly higher, so they have more to lose in a significant downturn and less time to recoup losses before retirement.”
And, don’t think for a minute that all of the losses in 2008 have been restored by a booming current market. As Teresa Ghilarducci reported in The Atlantic, large numbers of older workers have not gained enough in their investments in the decade after 2008’s losses to make up for their devastated 401(k) accounts. Speaking of her research with a colleague at the New School for Social Research, she wrote, “We thought that this group of people would be relatively able to come back from the crash, but we found that the averages, as they often do, have hid some of the substantial differences between individual workers. These averages distorted the risks people are exposed to when their retirement accounts are tied to volatile financial markets, depend on employer contributions, and require people to maintain or increase their contributions themselves.”
“The way American retirement accounts are set up suggests that an increasing number of workers, including those squarely in the middle class, will experience downward mobility in retirement,” she continued, “If current trends continue between 2013 and 2022, the number of poor or near-poor 65-year-olds will increase by 146 percent. These numbers are unlikely to change as long as retirement accounts are exposed to the fluctuations of financial markets and their uneven recoveries.”
This research flies in the face of investment advisors who urge their clients to sit on their accounts for the long term, Voudrie argues. In his personal research he has demonstrated again and again that buy-and-hold clients repeatedly make no gains with their accounts. So, why would they ever turn over their precious savings to an “advisor” who will simply watch it rise and fall, with no impetus to intervene during market downturns?
“A different approach may be needed from one season to another in the midst of an overall Bull or Bear market. The strategies used have to be more flexible and the account allocation needs to be dynamically adjusted more often,” Voudrie summarized. “Buy and Hold is a valid strategy but there isn’t any single strategy that works all the time, in all market environments. As an investments management specialist, it’s my job to match the strategies used to the type of market being currently experienced.”
He makes a powerful argument for what he calls “tactical management,” in stark contrast to Buy and Hold: “Tactical management typically involves some type of pre-defined approach that helps identify when to enter the market and when to exit. Tactical-based strategies are better suited for cyclical Bull and Bear markets that might only last for a series of months instead of years.”
Using sophisticated electronic monitoring and software, Voudrie works with his clients to create a personal investments management portfolio that reflects their lifestyle goals and risk tolerance. He specializes in stable growth and prudent profits while applying a robust, patented risk management processes.
“What I would tell retirees is to avoid firms like EDJ like the plague,” Voudrie concludes.
Jeff Voudrie, a financial planner in Johnson City, TN has been interviewed by The Wall Street Journal, CBS MarketWatch, The London Financial Times and the Christian Science Monitor. He is a former syndicated newspaper columnist and the author of two ground-breaking books: How Successful Investors Tripled the Return of the S&P 500 and Why Variable Annuities Don’t Work the Way You Think They Work. He accepts a limited number of new clients in his personal investments management practice. He and his wife Julie live with their seven children in Johnson City, TN. He is heavily involved in his local church and has done missionary work in Hungary and Cambodia.
 Brandon, Emily. “Retirement Savers Lost $2 Trillion in Stock Market.” U.S News & World Report. https://money.usnews.com/money/blogs/planning-to-retire/2008/10/08/retirement-savers-lost-2-trillion-in-the-stock-market, (retrieved 12/10/2017).
 Ghilarducci, Teresa. “The Recession Hurt Americans’ Retirement Accounts More Than Anybody Knew.” The Atlantic. https://www.theatlantic.com/business/archive/2015/10/the-recession-hurt-americans-retirement-accounts-more-than-everyone-thought/410791/, (retrieved 12/10/2017).