April 24, 2024

By Daniel Masuda Lehrman, CFP®, CSLP®

Navigating Financial Uncertainty: A Lesson in Investment Decision-Making from Denise's Journey to Retirement Success Amidst a Crisis

“I’m selling everything!” Denise exclaimed.  

Denise is a fictional client based on a real client I had been working with for 6 months.  She was a 60-year-old widow two years away from retirement.  I had been managing Denise’s investments for the past 6 months.  

Her account was 100% cash before we met, and I helped her implement a 40% stock, 60% bond asset allocation based on her long-term goals and conservative risk tolerance.  Though she had felt comfortable in cash, she understood the need to combat inflation risk over the long-term and agreed to implement my proposal.  

It took just one month during the beginning of a global pandemic to turn five months of steady gains into a significant loss.  

Denise was concerned that the market would fall considerably more before bottoming out.  She feared it would take years to recover what she lost and affect her ability to retire.  

I conceded that the global pandemic was unprecedented, and no one could predict with certainty when or if the markets would recover.  

I asserted that implementing a diversified investment portfolio with a long-term strategy was still a good decision and that she should stay the course, despite the uncertainty.  

“How could this have been a good decision if I LOST money?”  Denise scoffed.  

Valid point, Denise.  Despite my efforts to reassure her, Denise couldn’t understand how a bad outcome was the result of a good decision.  

Though Denise doesn’t blame me for failing to predict the global pandemic, she concluded that choosing to invest was a bad decision because she had lost money in the short-term.    

“YOU are managing my investments and lost me money!  I should never have hired you... This was a terrible decision.” she said, indignantly.   

What’s a good decision, anyway?

A “good” decision weighs all available information in that given moment. 

Say you’re playing Blackjack in Las Vegas and dealt two face cards.  You decide to split, as splitting face cards gives you a good chance to leverage your odds to win big.  

But say the dealer hits 21 and you lose.  Was splitting still a good decision?  

Any experienced or probability-minded player will say YES!  You made the best decision given the information you had in that given moment.  

Good decisions don’t always lead to good outcomes.   The same principle applies to investing.  

To most financial advisors, Denise made a good decision by implementing a 40S/60B portfolio.  

But Denise doesn’t see it that way.  She judges the quality of her decisions based on the quality of her outcomes.  Because her decision to invest led to short-term losses, she believes she made a bad decision to invest.  

This is a classic example of hindsight bias.

Hindsight Bias:  The tendency to judge a decision based on an outcome

The danger with hindsight bias is that we can become worse at decision-making. 

Every financial advisor knows that timing the market is a bad decision statistically.  In fact, we have better odds of winning at Blackjack than successfully timing the market.  

But what if, hypothetically, Denise ignored my advice and sold everything in March while the market continued to plummet and then reinvested at the bottom, successfully timing the market for handsome profits.  Does this mean that she made a good decision by selling everything?

Of course not. Bad decisions can lead to good outcomes

Betting our life’s savings on one hand of Blackjack isn’t a good decision, even if we win.  

Neither is drinking and driving, even if we make it home safely.  

The REAL value of a financial advisor

A “good” decision weighs all available information in that given moment. 

Despite the paralyzing uncertainty we collectively felt as the pandemic worsened, I knew that the stock market has historically recovered from many unique crises over the decades and rewarded those who stayed the course.  

Furthermore, the odds of market timing were not favorable.  The strategy with the best odds was staying the course.  

Denise was convinced to stay the course, which enabled her portfolio to recover in a matter of months.  It was the quickest recovery in market history, surprising even the most optimistic economists.  

It just goes to show that if there is one predictable thing about the stock market, it is that the market is unpredictable.   

Today, Denise is very happy she listened to me, as she has now exceeded what her balance was before the crisis started.  

This story is a great example of a financial advisor’s true value:  helping clients make good financial decisions (especially during moments of fear and uncertainty).  

Studies have shown that behavioral coaching is the most impactful part of a financial advisor’s job.  


If you resonated with Denise’ story and feel you’d benefit from partnering with a fiduciary financial planner, I’d love to speak with you!

About Daniel Masuda Lehrman

I am a Fee-Only Fiduciary and Founder of Masuda Lehrman Wealth LLC. Prior to starting my own firm, I was a Vice President Financial Consultant at Charles Schwab in their Downtown Honolulu office. I have worked in financial planning for 10 years at Vanguard, Fidelity, and Schwab. I'm a CERTIFIED FINANCIAL PLANNER™ professional (CFP®) and Certified Student Loan Professional with an Economics degree from the University of Michigan.

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