We know first-hand that talking to clients during a volatile market can be a diBrookstonecult, gut-wrenching process. Unless your clients have ice in their veins, they’re probably worried sick about the state of their retirement, looking for reassurance and a plan of action to see them through this market rollercoaster. Here are a few key points we highlight for our clients during times of uncertainty to remove any doubts or fears surrounding their financial plan:
What goes down, must come up.
The quickest way to soothe a worried client is to show how fleeting even the worst market downturns can be. The longest recovery period of the last century was the recovery after the Great Depression—it took about seven years for the S&P 500 to return to it’s all-time high, a comparatively short turnaround considering the amount of social turbulence and chaos the crisis created. The bottom line: history is a great teacher and luckily, when it comes to market behavior, shows that there are always better days ahead.
Zoom out.
The 24-hour news cycle and instant access to information has narrowed the average investor’s field of view down to near microscopic levels. No wonder our client’s have knee-jerk reactions to daily market fluctuations—they’ve been conditioned to miss the forest for the trees. It can be quite a shock then when we show them the total annualized return over the last century for the S&P 500—it’s 11%. That includes prices from recessions, depressions, corrections, wars, political chaos, etc. At every turn, “experts” have made dire predictions about the future when the crisis of their time took hold, but history has proven them wrong time and time again. It’s important to show our clients how the current market is no different and a chart like the one below speaks volumes for the resilience of the economy and the danger of a myopic investment strategy.
Source: Morningstar
Emotion is the enemy.
We love a good novelty shirt as much as anyone, but something about seeing one with “I lost my 401k in the financial crisis and all I got was this lousy t-shirt” written across the front struck a tragic note with us. A harsh truth of the 2008 financial crisis for those who panicked and sold their investments: it took less than 5 years for the S&P 500 to recover all of its losses. When our clients act emotionally, they unintentionally lock in losses and often miss the inevitable rally that follows. The graph below illustrates how missing even parts of a recovery can prove devastating to a client’s portfolio performance.
Source: The Simple Dollar
To avoid this, we like to run updated plans for our clients to help them understand how to maintain progress towards their goals. They’ll appreciate the proactive approach we’re taking and be less susceptible to taking an emotional detour from their plan. Get in touch with our financial planning team at info@brookstonecm.com if you need help running a new plan for one of your clients.
Stay the course.
If the past has taught us anything, it’s that those who stay the course and continue putting money into the market have the potential to profit handsomely, while those who try to time the market often lose massive chunks of potential returns. The chart below shows how some of the best times to buy stocks have been when things seemed the worst. As we’ve seen, on average, markets increase over time, so it’s typically a bad idea to be out of the market. We can’t predict what the market will do next, but we can remind clients that by focusing on things like optimizing asset allocations, reducing fees and minimizing taxes, we can lessen their exposure to unnecessary risk and encourage them to continue investing for the long term.
Source: Fidelity
Now’s the time to strengthen your client relationships—to be the voice of reason, of calm reassurance, and discipline. Help your clients ignore the day’s headlines, refocusing their attention instead on how their financial situation may be changing and what steps you can take together to stay the course.
Sources:
https://www.fidelity.com/viewpoints/investing-ideas/six-tips
https://www.morningstar.com/features/what-prior-market-crashes-can-teach-us-in-2020
