Do as I say, and not as I do.
Today, I’m going to confess to a bit of ongoing financial stupidity that I’m fully aware goes against multiple best practices. Let me see if I can sum it up in one sentence:
I’ve got investments I don’t want, with an advisor I don’t trust, because they are too far in the hole for me to sell without angst, and I’m waiting for the market to improve before I sell.
First I’ll break down all the things wrong with that sentence. Then I need your help.
I’ve got investments I don’t want …
I’m a low-cost index fund investor. I’ve been that way ever since I fell down the personal finance rabbit hole and found the scads of data showing that passively managed index funds beat out pricey actively managed funds consistently over the long run.
However, I have two ETFs — the SPDR S&P Pharmaceuticals ETF (XPH) and the Energy Select Sector SPDR ETF (XLE) — that were purchased before I really understand that. I got into those funds when my advisor sold me on the “I think these sectors are going to beat the market over time because …” song and dance. He was my advisor, I didn’t know enough to call shenanigans, and so I agreed to let him split a $35,000 401(k) rollover evenly between six funds/stocks he thought would beat the market.
The XLE has an expense ratio of .14% and XPH clocks in at .35%. Compare that to Vanguard’s VTSAX total stock market expense ratio of .04%. They’re more expensive than what I would rather that money be invested in. On the plus side, the do pay quarterly dividends. The dividends pay enough to cover an annual $40 maintenance fee I have to pay to keep the account open.
These funds are not part of my current asset allocation plan, yet I’m still holding onto them.
… with an advisor I don’t trust …
I’ve talked about this advisor before. He is half of the pair of dummies responsible for me mismanaging my investments and missing out on a bunch of growth. I’m the other half.
Ultimately, I’m thankful that we collectively messed up and ignored my investments for years. I never would have gotten this knowledgeable about investing, personal finance, and financial independence had I not been so thoroughly angry and embarrassed by the situation. However, that doesn’t mean I’ll excuse his incompetence.
This advisor also managed other family members’ funds and made more significant moves that did far more to benefit his bottom line than theirs. I got a phone call last month from his admin to set up an appointment to discuss “new developments in the finance industry.” As absolutely entertaining as it would have been to discuss the Fiduciary Rule with him, I decided it would be a waste of both my time and his. (For reasons why the Fiduciary Rule isn’t a cure-all solution, see this USA Today column on one loophole and this Distilled Dollar post on another.)
… because they are too far in the hole for me to sell without angst …
The combined value of my XPH and XLE holdings is $7,440 at the moment. However, I paid $9,400 two years ago. I’m down about $2,000 from what I put in, which means if I sold now I’d have “bought high and sold low.” That’s not a recipe for success.
Listen, I know all about sunk cost bias. I completely understand there are psychological forces at work here making me hold onto something I rationally know is kinda dumb.
Here’s what the charts look like:
The funds are in a brokerage IRA, so A) I can’t sell them and take a loss because they’re not in a taxable account, and B) I can’t shift them over to any of my other existing accounts because I would have to sell them anyway, as those funds aren’t available with my other options.
I either accept my $2,000 loss and move the $7,400 into my preferred asset allocation, or …
… And I’m waiting for the market to improve before I sell
It’s come to this. Classic market timing.
Just like sunk cost bias, I’m well aware of the futility of timing the market. It’s a sucker’s game.
For all I know, XPH and XLE will NEVER be higher than they are today. The prices I bought them at could be high water marks that will never be replicated. Like a band that has a major radio hit and plays festivals and then spends the next 15 years jamming in dive bars — everything looked so good back in the day. It would be like declaring Spacehog the band of the future right when Resident Alien hit the streets.
Sure, that’s a dang catchy track, but it was all downhill from there. They can’t even pay their domain hosting anymore. Maybe I should take Spacehog’s (borrowed) advice when it comes to investing: Sometimes you have to be cruel to be kind.
My plan has been to hold onto these two investments until they get within spitting distance of what I paid for them. Had I sold a year ago and bought VTSAX, I would have gained about $1,100 in the year since, not including dividends. That’s less than $2,000, but a year from now maybe I’ll be on the wrong side of the equation. Or maybe energy and drugs will come storming back like I’ve been thinking they would and I’ll be back at level.
Now you tell me: What should I do?
You’ve seen the numbers, the research, the fuzzy logic and the stubborn reasons I haven’t sold these things off yet. Maybe I’m crazy, or maybe I’m not. How about you help me decide?
If I can get a minimum of 20 people to weigh in on this poll, then I’ll do whatever the majority thinks I should do. Also, I’d love to hear your thoughts in the comments!
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