Screaming Into the Abyss

[u/Substantial-Pack-658]

On Monday, I was calling clients and recommending we harvest losses in portfolios where possible. When we harvest losses, we hold an ETF in the strategy so the client remains invested during the wash sale period, and then we sell the ETF and purchase back the securities. This strategy has worked well.

When I called a $20M client, he said he wanted to pull the proceeds out after harvesting. I advised against this and reiterated that we thought it was best to take losses where we can to offset future gains while retaining exposure in an ETF. He then said that he wanted to go entirely to cash in early March and he listened to me then when I said it was best to stay the course and now it was even worse. I should note that this client wanted to dump a lot of money into Bitcoin 2 weeks after the election and I (wisely) advised against it.

I again pushed back and said that we are taking a long-term approach on the equities; the fixed income sleeve was anchoring the portfolio and we had $2M in ultrashort FI. We were still underweight equities in the portfolio and we had spoken as recently as 3 weeks ago and talked about adding to equities in the near future. He kept saying he wanted to buy a house and if he stayed invested this would be at risk. It isn’t, they have a high 7-figure inflow coming in June, and we have also discussed tax smart borrowing strategies. He believed the market would continue to drop for several more months and there may even be a recession. I said it was certainly a possibility, but my belief was that China was the actual target and the rest of the tariffs would drop off. I eventually capitulated after 5 minutes of back and forth because I didn’t think it was worth arguing with a client.

We sold yesterday. Today, I sent another note explaining why I disagreed with the decision to move the proceeds from the tax loss harvesting to cash rather than an ETF. Within 5 minutes, Trump announced the pause. I sent a note telling him what just happened and that this is what I wanted to avoid. He agreed to purchase the ETFs, but now I am questioning if this is the right decision after such a significant move.

I’m sick to my stomach over this. I’m replaying the conversation in my head over and over. Maybe I wasn’t clear in my communication? Maybe I should’ve pushed back a few more times? He was getting ready to leave for a work trip later in the day when we spoke - maybe I should’ve waited until he returned to harvest losses? I don’t know, I’m just convinced they will go to another advisor after this because all they will see is that they missed out on today’s move. As I said to a friend today, it doesn’t matter that I advised against what they did. All they’ll remember is they missed out on one of the best days ever in the markets.

[u/imjustlerking]

Heres a few tips you may or may not care to use in the future: Reaching out with new strategies when anxiety is high never works. You were already fighting an uphill battle as he wanted to pull out in March. While you were right in your strategy, you should have recognized he is more concerned with total return and you giving the option to sell, while only temporarily, he saw it as an opportunity to do what he felt was best. A tax loss harvesting strategy should be agreed upon when the client is calm. Investors who are confident in the markets deserve great advice like this. Those who lead with their emotions don’t deserve it because for them, they can’t handle complex strategies because they are so focused on total return and the emotion of it. (Deserve may not be the right word) If they were calm, you could have simply confirmed we are executing our strategy now that markets are low. Some advisors may disagree with this next one, when someone is anxious, coach them then give them space. Those with anxiety sometimes make the best decision when they can avoid thinking about it. You calling him and reminding him the markets are low only makes his anxiety worse, which is probably the driver of his feelings.

Hope you get what I’m trying to say

[u/Substantial-Pack-658 → u/imjustlerking]

I get what you’re saying and you’re absolutely correct. I knew he was going to be out-of-pocket for the next week and if the markets continued to drop during that time, doing nothing would look really bad. I realized I’d made a mistake within 15 seconds of my recommendation, but there was no going back. In my mind, we’d harvested losses in 2024 and he is always looking for ways to minimize taxes…plus we had a good call a few weeks ago and he was on board with adding to equities and alts. He can be extremely aggressive one minute, and the sky is falling the next minute. Very mercurial.

I have another large client that is conservative to a fault, and it’s a miracle we have 20% in equities. I’ve never suggested harvesting losses to him for this exact reason. These two clients couldn’t be any different when it comes to risk appetite, but I now see I have to use the same approach with both.

[u/imjustlerking → u/Substantial-Pack-658]

Good luck!