Harold Evensky: Is This Time Different?

Geopolitical upheaval and rapid inflation have driven volatility and, with that, questions from clients about whether to reposition portfolios defensively. In my wide-ranging conversation with Harold Evensky, he explained how he responds to fears that this time is different.

If you’ve been reading Advisor Perspectives articles over the past three or four months, you know that there are a lot of informed opinions about what the markets are doing and where they’re going – and, of course, their conclusions are highly divergent. The situation reminds me a lot of the early stages of the tech meltdown two-plus decades ago, when the markets had become chaotic, and the speculation ranged all the way from buy the dips to flee to cash.

But the interesting thing is that we are always in this situation: in the dark, hearing informed, persuasive opinions about what the markets are doing and what they’re going to do next. I talked with Evensky, the co-founder of Evensky & Katz/Foldes Financial Wealth Management, author of The New Wealth Management, about his thoughts on what to tell clients about today’s choppy markets. He has consistently been one of the leading investment thinkers in the financial planning profession, and he offered some interesting perspectives that are very different from the prognostications you may be accustomed to reading.

We might as well start with his opinions on the actual idea of prognostications – or, at least, listening to them. Evensky notes that, particularly when markets are turbulent, people with above-average intelligence (a category that fits many financial planning clients) will assume that they are smarter than the average, and they perceive 'the average' to be the index market returns. The smart people develop opinions about whether this is a good time to reduce or increase their exposure to risk assets, often with the generous help of some confident predictions written by someone who ought to be (in the interests of full disclosure) wearing a wizard’s hat and staring intently into a crystal ball.

Naturally they are asking their advisors to make changes accordingly.

“The idea that someone with above-average intelligence or a lot of research can anticipate the markets is a very attractive story,” Evensky concedes. “It certainly sells books, and it generates lots of commissions. But the fallacy is that it has never been successful.”

Never? Can an advisor say that to clients?