Memo – Things To Ask Your Investment Advisor About The Coronavirus Stock Market Correction

To listen to the podcast version of memo click here —> Podcast Version

I have been inundated with calls, emails and texts, asking how investors should handle their substantial recent stock market losses.

First, I am a CPA and NOT an investment advisor. Your CPA / Tax Preparer should never also be your investment advisor. I have said this many times over the past three decades.

I will expand on this more at the end of this memo, so please read to the end. 

Suddenly quarantined and unable to work, many of us found ourselves in a terrible cash position. So many people do not have adequate savings for this type of emergency. 

I am hoping that this experience being quarantined due to the Coronavirus will change everyone’s saving habits in the future.

Do you want the best financial advice? Well, the best financial advice starts with planning for short and medium range emergencies where your earnings suddenly stop. This is where we all are now. 

Everyone asks me:

“Chris, where should I invest? Crypto? The stock market? Currencies? Real Estate? Precious Metals?”

My answer always starts with the following statement. 

“If you don’t have a year’s worth of living expenses in liquid and accessible cash based accounts, you have no money to invest in any of those other things.”

CDs are even too restrictive in this case. You want access to your cash immediately when needed, without the chance of penalties for early withdrawal. 

Until you have this cash saved, you shouldn’t be investing in anything speculative, such as the stock market. 

If this Coronavirus shut down has you short of cash, please plan for the future so the next time you will have plenty of cash available for as long as the next shutdown lasts. 

When the stock market suddenly dropped, these are three main questions I heard everyday:

1. Should I sell and cut my losses?
2. Should I hold and hope for a rebound?
3. How could I sustain such huge losses in such a short period of time?

Hopefully your investment advisor has been proactive and has contacted you often once these stock market losses started. If they have not contacted you, or have not been attentive enough to you, then you should replace them immediately. I can recommend many conservative advisors who have your best interest at heart. Please call me for a referral. 

If you have lost a substantial percentage of your investment value over the past few months, I would ask your investment advisor the following questions:

1. How much have I lost, in dollars and as %?
2. What hedges did you have in place to safeguard me in the event of such a large correction?
   1. In retrospect, why exactly didn’t they work? 
   2. Why were they inadequate?
   3. How specifically were they supposed to protect me?
   4. Had you prepared detailed models of these hedges prior?
      1. Can you send them to me?
   5. Can you show me exactly what actually transpired over the past few months compared to your plan?
   6. What specific safeguards should you have put in place to avoid such large losses in my portfolio?
      1. Why didn’t you?
      2. Are they in place now so this never happens again?
      3. Please send me the details.
3. If your advisor did not sell in time, and you had a dramatic loss of values
   1. Ask what specific research made them believe a correction was not imminent? Please push this point and force them to answer you. 
   2. The news of the virus had been available for many months prior to the correction.
      1. Why didn’t they know to sell on time? 
   3. What different research methods will they now be using in the future so this does not happen again?
4. For every specific investment under their care:
   1. Can you please review the exact loss of value?
   2. Before the crash you had me holding and not selling these investments. Do you suggest I hold or sell them now? 
      1. Why or why not? 
5. My CPA has told me for years that I should have a year’s worth of expenses saved in cash for emergencies, such as this virus. If that wasn’t formally your advice, will it be your advice now? 
   1. If not, why?
   2. If so, what is your plan to implement this?

Those questions are a great start. Please let me know the answers you get. 

Thanks for reading this far. Please take a few more minutes to read the rest. It is very important.

The mission of a CPA and Investment Advisor are sometimes diametrically opposed to each other. To many people they seem to be extremely similar, but this is untrue.

A CPA wants to protect your assets against loss and is very conservative in nature. A traditional CPA would never suggest that you risk your capital in the stock market. As a CPA, I get paid regardless of where you invest your money. I work by the hour on your behalf so I can objectively analyze your entire financial and tax situations. So my profit or earnings are never linked to your investments. 

Many CPAs, using the credibility given by their CPA license, sell investment services to their tax clients. Remember, the profit motive and fee structure of a CPA is much different than that of an investment advisor. 

Investment advisors are incredibly important, and this in no way is meant to denigrate them. You need an investment advisor as much as you need me to be your CPA, but they should simply be two different people. 

CPAs and investment advisors are as different as an HVAC expert and a landscaper. 

Imagine if your landscaper told you that he was also an HVAC expert and was running both companies simultaneously. Like me, you would say that it’s impossible to be an expert in two distinct professions at the same time. And you would be right. You would also wonder, why doesn’t my landscaper have enough business to make a living at just landscaping? 

By the same token, you cannot be an effective tax expert and investment advisor at the same time. Both disciplines would have to suffer, and that means that their clients will have to suffer. 

Each of these distinct disciplines should be a full-time job and pursuit.

In fact, many of my clients hire me to review the investment strategies and plans that are suggested by investment advisors. A CPA will give you an objective analysis as they work by the hour, and do not make money on where your money is invested the way an investment advisor does.  That is a very good use of my time.

So, please, take my advice, and immediately engage two distinct firms, my CPA firm for tax preparation, and one investment advisory firm. Make sure they are completely unrelated companies.

Remember, some CPAs are recommending so-called “independent” investment advisory firms, but they are making money on the back end of your investment transaction. Quite often they own the advisory firm they are recommending. I believe this is unethical. Please check to see if you are a victim of this.

Questions? Concerns? Call me on (732) 673-0510.

Click here to request a consultation or ask me a question.

Please reach out to me without hesitation with any tax, business or accounting question, and to schedule a consultation.

Tax Laws are complex.

It is very easy to make mistakes that can incur penalties.

Do you have a Tax, Accounting or Business Question?

Call Me Immediately. (732) 673-0510.

Is your CPA or Attorney

ignoring your Phone Calls and Emails?

Call Me Immediately. (732) 673-0510.

Remember,

“If We Aren’t Working For You, Then You Aren’t Working At Your Best”

Chris Whalen, CPA
(732) 673-0510
81 Oak Hill Road
Red Bank, NJ 07701
www.chriswhalencpa.com

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