Key takeaways:
- When markets are volatile, investors get nervous and are likely to make decisions that could hurt them in the long run
- An advisor can help their clients avoid behavioral mistakes
- One of our senior regional directors has four tips to help you keep your clients invested through turbulent times
I believe the next few months are going to be tough and if what I see on TV is any indication…real tough. You have an escalating trade war, ongoing geopolitical tensions, and fiscal uncertainty, and if that isn’t enough, concerns about the economic outlook. All appear to be influencing the stock market.
With these issues it’s easy to understand why many clients are frazzled and concerned about the potential for more volatility. When clients become nervous, they are more prone to making bad decisions.
Think about all the bad decisions you have made in your own life. Were these decisions made when you were rested and thinking clearly? Or, when you were upset and stressed? If you are me, it is the latter. Every time I make a bad decision it is usually because I am under some sort of stress or fatigued. The number one thing many clients pay us to do is to help them avoid bad decisions amid turbulence. That’s why we believe advisors are most valuable in challenging times. Current events point to the potential for ongoing turbulence. What should you do?
Stay C-A-L-M:
C-Communicate
A-Allocate
L-Levitate
M-Meditate
Communicate
We believe communication is key to helping clients navigate the highs and the lows of the market. Emotions can threaten an investor’s financial health. In fact, we publish a Challenging Conversations Guide (ask your Russell Investments team for a copy) and an online resource dedicated to helping advisors communicate effectively with clients. A quick call or voice mail goes a long way. I also think sending a client a cup of coffee or going for a walk with them is huge. One of the greatest tools you have in your kit is letting clients know you are available to talk and what you are doing for them. I think some advisors worry that they are communicating too much. Yes, there are some clients who don’t want a lot of communication, but that’s not likely the majority. Just make sure the communication is personal and intentional.
Allocate
Make sure every client’s asset allocations are aligned to their risk tolerance. It’s likely that recent market swings have pushed their asset allocations away from their policy allocations. We recommend reviewing their situation to help minimize the drift. Clients love upside volatility but not downside volatility. Once you and your client agree on the allocation, then document and share with your client how sticking to a disciplined rebalancing policy can help them avoid costly mistakes, such as buying high and selling low.
Levitate
Stay above the fray and away from the negative conversations. You are not going to change anyone’s mind and no one is going to change yours. If you engage in negative discussions, not only do you feel worse, it makes everyone involved feel worse. I have let my friends and family know that I do not want to talk about politics. The reason is not that I don’t like to talk ---my advisors know I do -- I just don’t want to lose friends and family over a difference in opinion. Do not get sucked in. Even if you think you know what someone believes, you may be wrong. So, don’t chance it. These conversations breed emotional reactivity, and this is the enemy of sound investing.
Meditate
I can see eyes rolling. I have been meditating for several years now and it has been a life changer. I know some people pray instead of meditating, and that is great as well. The reason I started to mediate was because I was feeling anxious and becoming short with my family. Something needed to change. I personally use the Headspace app, but there are a lot of great meditation apps out there. Pick one and watch the difference in how you feel and act. The biggest lesson I have learned from mediation is: It’s not the situation (or words or event) that affects you, it is your response to it that makes a difference. You alone can decide how to react to a situation. In other words, stop watching news that upsets you. Get off social media. Instead, read a book that makes you feel better. Being of a calm and sound mind will help you navigate decisions. Don’t let anyone or anything make you feel a certain way. You decide.
The bottom line
What does this all mean? Clients pay your fee because they are looking for someone to help them reach their goals. The only way they can reach their goals is to stick with their plan during turbulent times. You have to decide if you will be the reason they are able to reach their goals or just another advisor they don’t need. Keep CALM and carry on.