Portfolio skyrocketed in 2014? You'd better fire your advisor

Should you fire your FA?
Should you fire your FA?   

You had a great 2014. Your portfolio went up an astounding 17 percent, and now you have decided to thank your wealth advisor with an expensive bottle of Champagne.

I have a better idea—something you probably haven't thought of. Give him the old pink slip. That's right. Fire that financial expert.

You need to get rid of him—or her—and you need to do it now, because if your portfolio went up 17 percent last year, your wealth advisor did not focus on the one thing he assured you was his greatest concern: downside protection. If this financial expert managed your money properly, using non-correlated assets to ensure stability and focusing on risk as well as upside potential, then it was mathematically improbable to generate such an outstanding return.

Getting fired
Ghislain & Marie David de Lossy | Getty Images

Good advisors know that you always need a portfolio that contains non-correlated assets, ensuring that everything doesn't go up and—more importantly—that everything doesn't go down. And that was even more important at this time last year, when, due to the global slowdown, we were staring at a tremendous assault on corporate earnings.

A good advisor will find ways to generate high returns, but not to act in an overzealous manner in doing so.

History has taught us that at the beginning of any 12-month period, stocks have as good a chance of gaining 44 percent as they do of losing 25 percent. What's the chance that your wealth advisor can tell you with certainty where the market will be in 12 months? It's about as good as your palm reader's.

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So if you had sky-high returns last year, your advisor was guessing. And I'm guessing you didn't hire that person to make guesses, meaning he or she ignored your need to have downside protection. This advisor wasn't looking out for you.

Wealth advisors (of which I am one) do not have crystal balls that tell them exactly when the market will go up or down, and we never know exactly when to jump in or out. It takes hard work and close attention to the markets.

Sure, the S&P 500 Index had a good 2014. And if you had all or most of your money invested in the stock market, you—as an investor—did, too.

But what were you doing with most of your money in the stock market? What if stocks had a bad year? What then?

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Our greatest responsibility as wealth advisors is to protect our clients from major drawdowns in their portfolios. We're here to make sure that when the stock market stumbles, you don't fall—and we do that by managing a balanced portfolio with diversified investments in non-correlated assets.

This means making sure you have a piece of the action not only in U.S. equities but also in international stocks, corporate bonds, senior rate floating notes, real estate, gold and silver, managed futures, hedge funds and collectibles—a host of non-correlated investments designed to achieve lower risk.

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Last year almost every non-correlated investment to the stock market produced far lower returns than the S&P 500. If you had them in your portfolio, they reduced your return—but they also substantially reduced your risk. If the S&P had stumbled, you might have stubbed your toe. But you wouldn't have broken your leg.

We all love good times, but the biggest part of our business is ensuring that you don't go bottom-up in bad times. You may not have an astounding year, but you should rest assured you always have good, steady years. And you'll greatly reduce the risk of having a horrible year that could take many years to recover from. You'll give yourself the best chance of achieving solid, steady growth.

"If your advisor truly cares about your financial well-being, he'll be looking for a solid annual return on your portfolio—but not a huge one."

The world's economy is unstable. Events could unfold at any time in China, Russia, Europe or Japan that could lead to a rapid decline in stocks. A good advisor builds a portfolio with different risks. If your advisor put all or most of your wealth into stocks in 2014, he or she was ignoring the geopolitical issues in the world. Essentially, that advisor was playing Russian roulette with your money.

So if you're beating up your wealth advisor because your portfolio didn't grow like the S&P 500, step back and think for a minute. He more than likely did a great job. He gave you a properly managed portfolio that contained some investments that did poorly. He made sure that when one investment went up, there was another that went down. He designed a portfolio that included non-correlated investments.

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If your advisor truly cares about your financial well-being, he'll be looking for a solid annual return on your portfolio—but not a huge one. It sounds odd, but he needs to make sure that there's something in there that won't do well in good times, because if everything goes up in a good year, everything will go down in a bad one.

If you had a well-balanced portfolio last year, then you should have seen growth in the neighborhood of 11 percent. If you saw 17 percent, you got lucky. Your advisor guessed well. However, he was guessing, nonetheless.

It's time to get smart, not lucky with your investments.

—By Ed Butowsky, special to CNBC.com. Butowsky is managing partner at Chapwood Investments.