Portfolio never felt personal: a case about stocks, real estate, and investor psychology

Work with the client began at the end of 2018. Her life circumstances had changed, and she now had capital that needed to be managed thoughtfully. Until then, another family member had handled the financial side of things, so the task was not simply to choose instruments, but to build the entire capital management process. At the time the stock market was being widely discussed in Russia, so the client decided to seek professional help – her main goal was to generate regular income. At the same time, she also wanted the capital to preserve its value and, ideally, grow over time.

We prepared a personal financial plan. Separated the capital into a reserve and an active investment components, estimated a realistic level of portfolio income taking into account inflation, taxes, fees, currency risks, and upcoming large purchases. It became clear already at the planning stage that the desired level of current income significantly exceeded what the existing capital could support on a sustainable basis. We returned to this contradiction repeatedly afterwards.

Withdrawing no more than 3–4% a year from a portfolio expected to return 9–12% requires discipline. Taking more income today inevitably means drawing down the capital itself. This applies to all assets, not only the stock market.

Where my support added value

• At the outset, I gave the client a realistic assessment of her income expectations regarding rent-like income. It turned out that expecting 500,000–600,000 rubles a month with the available capital without dipping into principal was impossible: such a strategy would not be sustainable.

• In shifting the focus from “what should we buy?” to a proper capital structure – I separated the reserve and active part into distinct blocks, took into account upcoming large purchases, taxes, fees, and inflation.

• In protecting the client from misselling – I helped compare brokerage accounts, unit-linked policies, mutual funds, and other solutions in Russia and abroad not by sales materials, but through the lens of fees, transparency, and suitability for the client’s objectives.

• Operational support: opening and closing accounts, transferring assets, tax reporting, confirming the source of funds, requests to and from banks, brokers, and asset managers.

• In tax matters – each year I helped prepare reporting, minimize taxes using deductions and benefits provided by law, and prepare responses to letters from the Federal tax service.

• During periods of market turbulence – I was constantly in touch with the client: explaining events, helping separate news noise from real risks and avoid emotionally driven decisions.

• In 2023–2024 – I adapted the strategy to the client’s changed life circumstances: some securities were sold, and part of the funds was withdrawn from the portfolio to address current needs.

What proved more difficult than expected

• From late 2021 onward, external factors made the situation more difficult: inflation rose, and a rate-hiking cycle began. Geopolitical events and sanctions later added another layer of difficulty. This led to a prolonged portfolio drawdown. Unpleasant, yes – but explainable. However, psychologically, investing in the stock market became more difficult for the client than had initially been expected.

• Gradually, the client realized that the chosen strategy was not fully aligned with her temperament; that she felt more comfortable with hands-on real estate work – buying, renovating, renting out, selling – rather than waiting for years for the portfolio to recover.

• The original request contained a contradiction: the client wanted both high current income and growth at the same time, given the relatively modest size of the capital (several tens of millions of rubles). We discussed more than once that this was impossible without eroding the capital, but accepting it proved difficult.

• The infrastructure solution proposed at the first stage turned out to be too complex. Multiple investment accounts, reports, and transfers added to the client’s fatigue and began to feel like unnecessary friction. Over time, the process was simplified.

• Professionally, I did not consider it a strong decision to withdraw part of the portfolio during a drawdown and move it directly to Russia (more expensive than through CIS countries) to buy real estate in a stagnating market and in a historically weak currency. “The West treats Russia badly” is also not, by itself, an investment argument. Nevertheless, the client preferred this option.

• The value of the advisory work was not always immediately visible. The client saw the volume of work done, but periodically asked herself: “What is all this for?” – if the portfolio did not produce a tangible cash flow (again, largely because of inflated expectations).

• Changes in family circumstances reshaped the original objective faster than the long-term portfolio had time to realize its potential.

This is a complex and ambiguous case. On the one hand, the client received systematic support, assistance with tax issues, help with infrastructure and operational issues, document management, control and advisory support, including during emotionally difficult periods of market turbulence. On the other hand, the long-term return on investments was negatively affected by large-scale external events: the COVID‑19 pandemic, elevated inflation and rising policy rates, geopolitical instability, and the introduction of economic sanctions.

Initially, the client was focused on building long-term capital to ensure financial stability in the future, a comfortable retirement. However, over time, circumstances changed. Financial needs began to significantly exceed the possibilities that the existing investment capital could provide, given market realities, and the client’s priorities shifted.

It was not that the client lacked discipline. Rather, psychologically the securities portfolio never became a tool she could truly identify with her. She felt closer to what she could see and “touch”: renovating, renting out, selling; something she could control directly.

More recently, the client has focused increasingly on real estate transactions, seeing them as more profitable compared with the stock market. At the same time:

• there is no systematic assessment of returns on these transactions

• no comparative analysis with alternative investment instruments is conducted

Presumably, the capital appears to be moving from one real estate transaction to another, while funds are withdrawn as needed, which means it is not growing in real terms – unfortunately, a fairly common pattern among some Russian entrepreneurs.

The client’s attitude toward Western markets has become increasingly shaped by the emotional and media environment. The portfolio is now seen more as an instrument that does not address the client’s current need – high, tangible cash flow here and now.

Lessons from the case

• an investment strategy should be reviewed not only when market conditions change, but also when the client’s life changes: new expenses, family situation, investment horizon, attitude toward risk, need for current income

• it is important to find a balance between satisfying immediate needs and building long-term capital

• real estate, securities, deposits, and other assets need to be compared using the same analytical framework: taking into account fees, taxes, inflation, time spent, liquidity, and overall market dynamics – otherwise “return” may be little more than a feeling

• external macroeconomic and geopolitical factors can significantly affect the implementation of long-term financial plans

This case once again convinced me: a good investment strategy is not only about the mathematics of return and risk; it also has to be psychologically compatible with the client. The strategy must be simple enough for the person to follow it for years without constant internal resistance. Otherwise, they will begin looking for an alternative that seems more understandable – even when the numbers do not support that choice.