Voices ‘What happens when the market acts normally again?’ – Financial Planning

Last week, one of my clients emailed me a plain but pointed question: “What happens when the market acts normally again?”

In the same note, he said he was nervous about the stock market outlook. Although markets were still on an upward trajectory, it struck me that this was an investor with the right outlook.

With a conservative 60/40 portfolio, he was less enamored with the gains of 2017 and early 2018. Instead, he was nervous with how much loss his financial plan could withstand.

Bloomberg News

I suspect other advisors are getting similar notes. Clients are nervous about stock market performance after watching nine years of positive returns. Now that things have gone up for so long, what will the downturn look like? As we have discussed with them, what goes up tends to come down. While we all hope and believe that markets will increase over time, that doesn’t come without down periods.

What puts clients on edge even further is when these movements happen in a number of days. Clients with a sensitive aversion to loss can need a tremendous amount of hand-holding, when a year of gains can be decimated in a week.

So how should we talk to clients about volatility?

Focusing on numbers, market cycles, and the economy is only a Band-Aid conversation. Clients can hear what we’ve said, understand fully, turn on the news, and the noise starts to worry them all over again.

The conversation I had with my client last week focused on his upcoming retirement. We discussed how market cycles have been factored into his overall plan, and I reminded him that even if he retired at the start or middle of a downward cycle in the markets, he had enough cash to last him for the next two years.

He had an upcoming pension that would cover many of his expenses and a diversified portfolio that would not all be subject to a decline in U.S. markets. He had bond positions that would be used to provide income when his two years of cash ran out.

I even showed him what could happen if we adjusted portfolios so he knew what his options were. Showing him that he had a long time before he needed to access his equity positions seemed to ease his fears and bring a sense of calm back to the conversation.

By focusing clients on their individual plan and strategy, it helps them break away from the media noise that causes blood pressure to rise. They are able to understand how their own situation may work, how their portfolio is customized to their own needs, and while market swings may reduce account balances for a period of time, their long-term plan is still on-track.

As advisors, we are supposed to be the calm in the storm for our clients — let’s make sure our messaging does that quickly.

Dave Grant

Dave Grant, a Financial Planning columnist, is founder of Retirement Matters, a planning firm, in Cary, Illinois. He is also the founder of NAPFA Genesis, a networking group for young fee-only planners.

More from this Author

This Article Was Originally From *This Site*

Powered by WPeMatico