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Unquestionably, the stock market has experienced extreme volatility in the last couple of years, elevating the anxiety levels of investors who grew complacent throughout a historic 11-year bull market. Just as they did throughout the wild gyrations of the 2008-2011 market, investors have grown intolerant of the recent, wild stock market gyrations, resulting in many choosing to make wholesale changes to their portfolio, switch financial advisors, or flee the market entirely.
But, what investors may not understand is that switching between asset classes to avoid volatility can actually have the opposite effect. It is incumbent upon financial advisors to help their clients understand that, with a sound investment strategy and a long-term perspective, volatility can actually be good for a stock portfolio because it has always been the primary force that drives market gains over time.
Unquestionably, the stock market has experienced extreme volatility in the last couple of years, elevating the anxiety levels of investors who grew complacent throughout a historic 11-year bull market. Just as they did throughout the wild gyrations of the 2008-2011 market, investors have grown intolerant of the recent, wild stock market gyrations, resulting in many choosing to make wholesale changes to their portfolio, switch financial advisors, or flee the market entirely.
But, what investors may not understand is that switching between asset classes to avoid volatility can actually have the opposite effect. It is incumbent upon financial advisors to help their clients understand that, with a sound investment strategy and a long-term perspective, volatility can actually be good for a stock portfolio because it has always been the primary force that drives market gains over time.
See market volatility as an opportunity to strengthen client relationships
Periods of market volatility are ideal opportunities to conduct a review of your clients’ portfolios and refocus them on their long-term strategy. It’s a chance to reconfirm their objectives and risk profile while ensuring their portfolios are appropriately balanced according to their ability and willingness to assume risk. Market volatility also creates tax-loss harvesting opportunities, which can generate immediate tax benefits while maintaining the integrity of their asset allocation strategy.
Above all else, have a plan to communicate with your clients. Clients value communication as much as they value good investment performance. Use it as an opportunity to educate them on the “value” of volatility in boosting portfolio returns over time while keeping them focused on their long-term objectives.
Related: Making Sure You Make the Most of Market Uncertainty