The recent volatility in the marketplace is causing many investors to become anxious and concerned. If it goes on much longer, that anxiety can turn into panic…ultimately influencing investors to make short-term decisions.
You may say that investors shouldn’t panic. They shouldn’t pay attention to short-term outcomes. But if we did everything we should do, no one would need an advisor. We are human. We are influenced by emotions and oftentimes focus too much on the news story of the day. Financial advisors earn their greatest value in times like these.
But that value is only realized if it is put into action. It is time to be PROACTIVE. Don’t wait for your phone to ring. Don’t wait for those emails. And don’t blame your client for getting worried. If they never got worried, they wouldn’t need you in the first place. It is time to proactively reach out and remind investors of important investment truths. Things you may have said before. Now is a great time to remind and be the source of reason. If you wait until clients contact you, it may be too late.
Here are a few points to share with your client. You may want to edit and customize these points to your liking:
1) It is likely the media will have a heyday with the recent losses, and perhaps showcase predictions of much more dire things to come. The media is all about getting you to tune in, not to help you with investment decisions. When things are good they highlight how great things are, and when things turn south they jump on the bandwagon and act like there won’t be a tomorrow. Best to tune them out.
2) We are way overdue for a correction. Over the past 6 years there has been much less volatility in the markets than there usually is. We have become a bit desensitized to how stock markets actually move. Losing 10% – 20% over a period of months is not unique. Markets go up and down. Every time something different causes it – and instills a lot of fear. This time and times in the future will be no different.
3) If you have at least seven years until you plan to fully cash out of your account, then you have nothing to worry about. Even if we were to get a protracted downturn, it wouldn’t matter for long-term investors, in fact it can benefit you.
4) If the markets go down significantly more, expect to take advantage of the weakness and buy high quality stocks “on sale”. It’s not easy to buy stocks after seeing them go down, but it can really help your returns over time. A 5% loss is not sufficient to do this. I’d be looking for a 15% – 20% loss before we put money to work.
5) Diversified portfolios, which you have, ensure that you don’t move in line with the market. You don’t go up as much as the market, but you also don’t go down as much. And by having assets that do well in tough times such as bonds, we have the ability to actually purchase stocks on sale – to take advantage of temporary losses for your long term gain. The key is to think long term (seven years or more) and ignore the short term stuff.