A financial professional helps clients focus on their long-term goals during market volatility. They can also review the investment mix and rebalance the portfolio as needed.
They can keep the news in perspective by reminding them that an average amount of volatility is inevitable and expected.
Be Prepared
A financial professional should be ready to answer questions, provide professional advice, and review a client’s long-term investment plan. They should also be able to explain how market volatility is average and, over time, those who remain disciplined and focused on their financial goals are often rewarded.
Another important aspect is helping participants understand the complexities of investment concepts, such as market volatility and how it relates to retirement savings. Incorporating visuals into benefit communication materials can be an effective tool.
It is also helpful to remind participants that a well-diversified portfolio may help alleviate fear and anxiety during a volatile market by providing them with returns across many scenarios. They can maintain their objectives and financial plan in perspective as a result.
Remain Disciplined
During market volatility, it’s easy for clients to make emotional decisions that can be costly. They may be tempted to abandon their investment plan or sell in the panic of losing value, but staying the course is the more brilliant choice.
While it’s challenging to remain disciplined in volatile markets, financial professionals can help their clients stay focused on long-term goals and investment objectives. They can also educate clients on what causes volatility and why it’s a normal part of investing.
They can also remind their clients that rebalancing is an essential process during times of market volatility. It involves buying low and selling high to align a portfolio with an investor’s desired asset allocation. It can help investors avoid over-risking their investments by lowering risk as they get closer to retirement.
Avoid Emotional Decision-Making
Emotions can lead to impulsive decisions that could hurt your clients financially. For example, a client might sell stocks out of fear when a downturn occurs, even though holding onto those stocks could be more beneficial in the long term. Investors frequently base their financial decisions more on emotion than on rational thinking.
Focusing on your long-term financial goals and using an intelligent investment strategy are the best ways to prevent emotional decision-making. For instance, a routine investment plan like dollar cost averaging can help because it removes emotions from the investing process by requiring you to invest a set amount of money at regular intervals, no matter whether the market goes up or down.
During market volatility, it’s essential to be prepared and remain disciplined. The most critical thing to remember is that market turbulence is a normal part of the investing process and might be a chance to bolster your portfolio.
Dollar-Cost Averaging
Dollar-cost averaging is an investment strategy involving regularly investing a set amount, regardless of the market’s movements. It lessens the risk of trying to time the market, which can be challenging.
When the market is up, it’s easy for investors to want to invest more than they intended. Conversely, investors may withdraw investments when the market is down. However, doing so can result in taking advantage of potentially profitable opportunities.
An excellent way to avoid this is by implementing dollar-cost averaging through an automatic investing plan like a 401(k) contribution or IRA rollover. A consistent investing schedule can reduce the impact of market volatility and make it easier to stick with your long-term goals.
Talk To Your Clients
The most important thing financial professionals can do is to communicate with clients, especially during market volatility. Preparing an email explaining what’s happening and providing some context (i.e., big sell-offs are relatively standard and can even be beneficial in the long run).
They were reassuring clients that their accounts are safe and sound is vital. They should be reminded that their portfolios are still up as much as the overall market and that rebalancing will help keep them on track with their investment goals.
There is a better time to wax on asset allocation and standard deviation or provide a detailed technical description of recent market gyrations. That could only exacerbate clients’ anxiety and possibly lead to them making impulsive moves that they might regret or, worse, file an E&O claim against you.
Resources:
How to Talk to Clients About Market Volatility
