A sign I read in a doctor’s office — “Who do you trust, a trained doctor with a medical degree or Google?” — came to mind when I recently saw a poll of financial advisors about managing portfolios during market declines. Eighty-five percent recommended taking action. Fifteen percent recommended “staying the course.”

Eighty-five percent of advisors listen to Google, their clients’ demand for action, financial news channels, their employers, and their own fears. I used to think that the financial industry loved declines because of the opportunity for additional trading and commissions. As the industry moved toward fees instead of commissions, this is less of a concern.

[Most non-commission financial accounts are still secretly charged for trading. A portion of the spread between the bid and ask is refunded to the organization placing the order. It is called “payment for order flow.” We and Fidelity do NOT participate in this practice.]

The main problem is that almost all actions intended to protect portfolios from declines have higher costs than simply doing nothing. Insurance, options, bonds, futures, low-volatility stocks, and short selling have either higher cash outputs or lower returns than sitting tight. These placebos may make you feel better, but they are very costly — especially in the long term.

Despite all the pressures, fifteen percent of advisors follow the history and the evidence and recommend staying the course. The pressure is high. Behavioral science finds that the pleasure you receive from a profit is only half of the emotional pain you experience from a same-size loss.

As part of the fifteen percent in the stay-the-course camp, we do take actions every day — and not only during the actual declines.

First, we explain that declines are naturally occurring events that should be expected, cannot be avoided except at very high prices, and are essential to our earning above-average returns.

Second, we only purchase safe, high-quality securities that can ride out declines and recover faster than the market. A corporation with a habit of buying back shares can take advantage of lower share prices in declines and recover earlier than the market because fewer shares mean higher financial numbers per share.

Katz Family Financial