Its happening -- finally.
The long overdue correction in the worlds stock markets is taking place, but knowing it was supposed to happen doesnt make it any easier to stomach.
So how should you be handling this with your clients, especially millennials who may not have been in the situation before?
EDUCATE MILLENNIALS
For younger members of this generation, this is the first stock market correction that theyve experienced while being in the workforce. For others, they lived through The Great Recession and this may be bringing back some negative emotions.
For these clients, look to provide education.
Using graphs to aid your explanation, show how this market movement has been expected for a while. A continual market increase is not a good thing as it leads to bubbles, and a healthy stock market should experience periods of retraction as well as expansion. If these clients have some available cash, now could be a good time for them to purchase some equities at reduced prices -- but only if it fits into their long-term plan.
UNDERSTAND GEN X CONCERNS
Your Gen X clients have certainly lived through this stock market scenario before, but theyre getting closer to retirement, so this one may have a more profound impact. The message remains the same: education needs to be the front-running strategy in alleviating concerns. Its not the time to discuss changes in portfolios --regardless of client intentions -- but its a time to discuss what is happening.
If a client seems very shaken up by a loss in their investments, then understanding why and where this reaction is coming from is a challenging but necessary part of an advisors job. Noting which clients are not handling it well can lead to conversations in the near future about portfolio changes. If a client is past concerned, and near panicked, then discussing putting stop-losses on positions to minimize any long-term damage may be appropriate.
COMFORT BABY BOOMERS, RETIREES
For those needing their portfolio to provide retirement income, this may be a difficult and anxious period to be in -- but this is where your portfolio design and expertise should be shining through.
Staying on the theme of education, explain how their portfolio has been designed to weather changes like this, and how their investments are set up to still provide adequate income in times of a market downturn. Provide comfort to them by explaining how their portfolio is designed for the next 20-30 years, and not insulated from small time blips like recent events.
They will feel some short-term pain from these market situations, but they should experience a long-term positive experience with their portfolio. If they are in a situation to deploy excess cash, then this could be a good time for them to buy-at-a-discount and bolster their equity holdings.
No matter the type of client that comes to you with questions, make time to educate them on what is happening, why it is happening, and how their investment portfolio is designed to weather storms like this one. Its at concerning times like this that advisors, like you, show your worth.
Dave Grant, a Financial Planning columnist, is founder of Finance for Teachers, a planning firm, and Fee Only Consulting, in Cary, Ill. He is also the founder of NAPFA Genesis, a networking group for young, fee-only planners. Follow him on Twitter at
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