How to Address Volatility With Clients

The market has experienced historic levels of volatility since the beginning of the coronavirus pandemic in March 2020. There was the initial shock delivered by worldwide lockdowns, the monstrous rebound, the advent of meme stocks, and fears over inflation, an overvalued market, as well as the ongoing pandemic.

As investors and economists sort out their concerns about the state of the market, offering clients a long-term perspective is key. Focusing on a long-term approach can help minimize anxiety in the short term and help clients better understand their overall financial goals.

Key Takeaways

  • Some level of volatility is a sign of a normal and healthy market and not a reason to panic.
  • Focusing on a long-term approach to investing will relieve short-term anxiety about large selloffs.
  • Investment brokers should use the opportunity to help their clients better understand their overall financial goals.
  • For younger and more proactive investors who believe the market will be higher in 20 or 30 years, this may be an opportunity to rebalance and buy more stocks while they are down.

Staying the Course

“I am telling clients that being a little bit scared, or at least spooked by this quick drop in the market is not unusual,” says Blair duQuesnay, Investment Advisor Representative at Ritholtz Wealth Management. “Yet for those of us that are long-term investors rather than speculators trading by the seat of our pants—we knew this was going to happen. These are normal, necessary, and dare I say, healthy, characteristics of the stock market.” 

Her advice is echoed by Justin Castelli of RSL Wealth Management. When it comes to worried clients, “I remind them that we've worked through situations similar to this before and sticking with their plan is the best course of action,” he says. “Retirees have their income needs out of the market, which allows their equities time to recover, and young professionals have a long term horizon allowing them to ride it out.”

Looking for Opportunities in a Volatile Market

Offering context for market volatility can go a long way in reassuring clients about their long-term financial security and helping them understand a sharp downturn as a temporary setback. And for those clients who may want to take a more proactive approach, helping them to understand current market conditions can offer new avenues for investing. 

“The other side of the coin is looking for opportunities,” says Douglas Boneparth, President of Bone Fide Wealth. “The conversations I have with my clients focus on two things: Is there any room in their portfolios to buy equities? If they can afford to do so, is there additional cash they can afford to invest in cheaper stocks?” He emphasizes that this type of strategy needs to be part of a well-developed financial plan and something that you ideally prepare for long before it happens. “These are things that you establish with your client before this type of volatility happens—and it’s all done to help remove as much emotion as possible,” he explains.  

For clients who are more cautious but still looking for a proactive way to deal with the selloff, rebalancing could also be a good option. “Every market selloff is 'different' in some way,” says duQuesnay. “If you believe the market will be higher in 20 or 30 years, this may be an opportunity to rebalance and buy more stocks while they are down.”

The Bottom Line

While addressing investor fears can feel challenging, the advisors we spoke with agreed that planning ahead and offering clients a long-term perspective are the keys to weathering the storm. “Even with the best planning, this can be difficult,” says Boneparth. “What great planners do best is to help their clients navigate the behavioral components of investing.”

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