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I write this as the
Why aren’t they calling?
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They will have a lot of questions. Here are ways to put the decline into perspective.
February 8 -
Getting clients to understand how volatility is an essential part of investing isn’t easy, but is even harder when stocks had been in the midst of an uninterrupted bull run.
February 5 -
Do stock market swings mean new opportunities for financial planners?
August 14
Because they aren’t particularly surprised or, for the most part, alarmed. We have spent the last several months — years, in some cases — framing clients’ expectations. We have been communicating consistently the essential nature of markets — that they don’t keep going up forever. We have drummed into them the necessity of diversification, rebalancing and risk management. We have systematically reviewed our clients’ portfolios and evaluated their asset mix in relation to their season of life, risk tolerance and financial goals.
And during the past several months, of course, we have been telling our clients that the markets are currently sailing against a headwind because of rising interest rates, inflation fears and international trade worries (particularly those involving China and tariffs). We have explained that these are generally — with the possible exception of the tariff talk — normal aspects of the business cycle, and that in order for the market to remain healthy for the long term, it must go through periods of downward repricing. We have encouraged (and trained) them to see these as opportunities for dollar-cost averaging and, in appropriate cases, tax-loss harvesting.
Furthermore, we teach our clients to understand the fundamentals of portfolio design. Most of us tend to associate the worried calls primarily with retired clients who fear the worst with any market downturn. But for a retired client whose asset mix we have adjusted to fit the appropriate risk profile — say, 30% equities and 70% fixed income — a 2% reduction in stock prices just doesn’t have the catastrophic effect on the portfolio that the news headlines might suggest. As we have counseled our clients, history is on our side, as long as we continue to follow our fundamental principles.
I once heard an old rancher say, “Plentiful water has ruined more livestock operations than any drought.” In other words, staying disciplined during the challenging times builds the foundation for greater wealth during the easier times. We spend most of our time encouraging our clients to adopt this attitude. And during days like the ones we've seen recently, it pays off.
