Even the most confident investors may be unsettled by market ups and downs. That is why advisers tell us it is important to help clients understand that market volatility is a normal part of investing.
You may wish to take advantage of regular review meetings, phone and email communications, even your newsletter (if you provide one), to remind your client that market volatility is an unavoidable aspect of investing.
Also, remind your client that you’ve designed their portfolios to help withstand the impact of volatility. Reiterate that discretionary portfolios are designed to provide returns over longer-term time horizons, typically three, five or even ten year timeframes.
You may need to be more specific and explain the role that each asset class and sub-asset class plays – individually and together in the portfolio – to help your client reach their goals.
Help them understand that choosing an appropriate asset allocation, with a mix of stocks and bonds that is right for them, and then sticking to it, can help deliver better investment results over the long term.
Periods of market volatility can provide an opportunity to speak to your client to ensure their stated risk tolerance is still current as experiencing volatility for the first time can lead clients to reassess initial attitudes. Reassuring, objective advice from you will be important at this time.
The importance of not panicking
You may wish to explain to clients who are tempted to sell during a downturn that this not only guarantees at least a short-term loss but also makes it virtually impossible to know when to get back into the market.
To make it worthwhile, you need to get the timing of two decisions right, when to sell and when to buy back. Waiting on the side-lines while the market recovers often means clients can end up forfeiting gains they may need to reach their financial goals.
We would like the opportunity to meet you
Volatile markets can offer some excellent opportunities for your clients, if you would like to hear about these, we would welcome the opportunity to explore these with you.
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About the author
Paul Bolt, our wine expert, was recently inducted as a Chevalier de Champagne and actively trades on Livex.