Advisors Fearful When They Should Be Greedy

By on November 1, 2010

Jason Zweig of the Wall Street Journal reports on the financial advisory industry and the questionable asset allocation advice they provide.

Investment professionals are supposed to exercise independent judgment; in Warren Buffett’s words, they should be fearful when others are greedy and be greedy only when others are fearful.

It doesn’t always work that way. Corporate pension funds had 69% of their assets in stocks in 2007 as the market hovered at record highs. They have slashed that exposure to 45%, as my colleague E.S. Browning recently reported.

Advisers, too, have been buying higher and selling lower. Those who use TD Ameritrade had an average of 26% of clients’ assets in bonds and cash on Oct. 9, 2007, the day the Dow Jones Industrial Average hit its all-time high of 14164.53. By March 9, 2009, the day the Dow scraped rock bottom at 6440.08, the advisers had jacked up bonds and cash to 51%.

Source: The Wall Street Journal

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