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A central challenge advisors face are is clients who need mid- to high-single-digit returns to achieve their long-term goals, but who have an overweight position in cash. A recent luncheon with a group of highly successful advisors highlighted this challenge and illuminated a way to overcome it.
Clients know that they’re earning next to nothing in money market funds and savings accounts; locking up funds in five-year CDs or government bonds doesn’t do much better. The issue is how to present alternatives in a fashion that motivates clients to act.
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The advisors around the table shared four approaches they’d tried with little or no success:
- One advisor had sat down with clients to review their financial plans, in some cases updating them, to drive home how staying in cash is jeopardizing clients’ financial futures.
- Another advisor showed clients charts and graphs demonstrating that stocks are reasonably valued by historical standards.
- Still another had used material from a fund company demonstrating how quickly markets could move once they began to bounce back – and the risks of missing that move if in cash.
- The last advisor had built an extensive case for owning a group of high-profile multinational consumer packaged goods and pharmaceutical stocks. He focused on the yield available from a diversified basket of these companies, pointing out that their dividend payout is comparable to owning a bond yielding almost 5%. He also emphasized the fact that most of these companies have not cut dividends in recent memory.
