Are Sliding Stocks Rattling Your Clients?

The stock market has been volatile for the past several years, but lately that volatility has been in the down direction. This week alone, the Dow Jones lost 913.25 points. Have the latest gyrations shaken investors?

Yes and no. Just ask an advisor.

Kenneth Nuttall, director of financial planning at BlackDiamond Wealth in New York, said the latest slide reset the picture of reality for some clients. 

“October did put the fear of risk back into people. Investors have figured out or remembered that the market does have risk,” Nuttall said. 

Others say their clients are watching closely, but not panicking – not yet, anyway. Dennis Nolte, VP at Seacoast Investment Services in Oviedo, Fla., said he can just sense that some clients are feeling angsty.

“I’m not fielding panicky calls yet, but I can feel (not see) the arched eyebrows of a few clients closer to retirement,” Nolte said.

So, what should you do when (if) clients do panic?

Educate Clients

The best way to avoid having anxious clients frantically trying to reach you when the market dips is to educate them about their investment portfolio, the market and risk.

“I try to educate my clients on the risks on both the down and upside and this needs to also correspond with the clients’ plan and time horizon,” Nuttall said.

Nolte offers some general suggestions for posturing portfolios to weather the storm.

“Most of our clients who we have not shifted earlier in the year to a more conservative posture are OK with riding this out (meaning they’re OK with volatility),” Nolte said. “Those that are not, are appropriately in more conservative postures – cash, adding some 3 percent CDs (two-year maturity) for the bond portion of the portfolio.”

Communicating Needs And Opportunities

Remember, even though financial professionals aren’t rattled by market volatility, it’s important to understand that concern and anxiety about the market changes are natural.

Mike Giefer, an advisor with The Johnston Group in Minneapolis, said advisors can’t assume that seasoned investors aren’t anxious.

“Even the most patient, long-term investors have a hard time ignoring these types of market slides and corrections,” he said.

Giefer also says the key to quelling those fears is understanding why the investor is nervous in the first place. Are they long-term investors? When do they need returns from those accounts?

“We stress with clients the importance of cash flow and communicating any upcoming needs from their investment portfolio,” Giefer said. “If you’re a long-term investor, or don’t anticipate needing money from your investment accounts any time soon, you shouldn’t be as rattled when markets dip like they have the past six weeks. This is especially true for relatively younger investors with long time-horizons ahead of them. They, in fact, should be welcoming these types of corrections as a great opportunity to buy equities and reduced prices.”

Putting It All Into Perspective

Advisors say the best way to avoid panic during a difficult market is through communication, reassurance and focusing on the client’s goals.

Alexander Koury, a CFP with Values Quest in Phoenix, said it is important for clients to step away from the day-to-day drama in the markets.

“It is important as a planner and a client to take a deep breath, put the market move into perspective of what has happened over the past 10 years, and confirm goals for those clients,” Koury said. “It is even more important for planners to listen to their clients, let them vent any frustrations or concerns, and address their issues accordingly. Then, if there is cause or reason to make a change in the client’s portfolio or risk tolerance those measures can be taken accordingly.”

Koury said understanding the client’s concerns and reassuring them that they have put their portfolio in the right investments helps alleviate the stress of a volatile market.

“Recently, I spoke with a client that was frustrated because he had not ‘made’ any money since he began investing with me in January of 2017,” Koury said. “And in that short period of time, the markets have experienced three pullbacks of 10 percent or more. Based on his risk tolerance, being more aggressive with his portfolio will subject it to the volatility of the market. After hearing his frustrations, I reminded him that since March of 2009 until now, he has participated in all the upside of the market, and he has made significant gains along the way, and he does not need any money from his investments for another 10 years or so. Keeping the bigger picture in focus helps alleviate concerns and fears, although his concerns are valid and must be addressed along the way.”

AdvisorNews Managing Editor Cassie Miller may be reached at cassie.miller@Adnewsfeedback.com. Cassie has an extensive background in magazine writing, editing and design. Follow her on Twitter @ANCassieM.