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Market volatility is a constant companion, capable of making even the most seasoned investors uneasy. As financial advisors, our role extends far beyond number crunching to serving as pillars of reassurance and sound judgment for our clients. One of the most common questions that we face during turbulent times is, "What's going to happen to my portfolio? I want to understand what is going on and why." In those moments, educating clients, reaffirming their financial goals and addressing other key issues become vital tools for maintaining a steady course.
Following are some steps that we use to assure our clients:
- Education is a priority
The first step in keeping clients calm during market volatility is education. Clients are more likely to make informed, rational decisions when they understand the dynamics in the market. As advisors, it's our duty to break down complex financial concepts and market forces into easily digestible pieces.
To go about this effectively, we need to help our clients understand the root causes of market fluctuations, whether they're driven by macroeconomic factors, company-specific news, or global events. Educating clients about market volatility involves engendering an understanding of risk and reward dynamics. We explain how market corrections and downturns are a natural part of the economic cycle. We share historical data showing how markets have rebounded after previous crises. An emphasis should be made that their portfolio is designed with a long-term strategy in mind, and that short-term fluctuations should not dictate long-term decisions. A diversified portfolio can mitigate the impact of a downturn in one sector or asset class. By empowering clients with knowledge, they can overcome their fears and gain a sense of security, enabling them to make more rational, confident decisions.
- Reaffirm financial goals
During periods of market volatility, clients may feel the urge to significantly alter their investment strategies. Remind clients of the financial goals they set when you first began working together and to review their personalized financial plan. Revisit the specific milestones and timelines associated with client objectives. Whether it's retirement planning, wealth accumulation, or funding children's education, these goals provide a compass to navigate choppy financial waters.
Encourage clients to revisit and reaffirm their financial objectives and keep open communication about any shifts in life situation, risk tolerance or financial capacity. Reiterate how their investment strategy aligns with these goals. By keeping long-term objectives in focus, clients are less likely to be swayed by short-term market turbulence and you can tailor the discussion to address any new considerations that may impact their goals. Clients must understand that their financial plan is designed to weather market storms and is not easily derailed by transient market fluctuations. Reemphasize the importance of periodic reviews and adjustments to their investment portfolio.
- Addressing other issues
While market volatility often takes center stage, it's also an opportune time to address other financial planning matters. Clients may be preoccupied with the immediate health of their portfolio, but a holistic approach to financial planning should encompass a range of issues, including estate planning, retirement readiness, and cash flow modeling.
Help clients understand the importance of a comprehensive estate plan. This includes wills, trusts, powers of attorney, and other critical documents that safeguard their wealth and assets.
Retirement planning, too, deserves attention, especially during market turbulence. This is an excellent time to review the retirement strategy, assess the impact of market fluctuations on the retirement timeline, and explore potential adjustments that may be necessary to secure a comfortable retirement.
Cash-flow modeling is another vital aspect of financial planning, particularly during market volatility. Clients should be reassured that their day-to-day finances and expenses are well-mapped, ensuring they can withstand market downturns without compromising their livelihoods.
During moments of market volatility, our role as financial advisors extends far beyond managing investments. We must become educators, reminding clients of their financial goals and addressing other key issues in their financial lives. By providing a sense of clarity, confidence and a comprehensive approach to financial planning, we help our clients remain calm, focused and positioned to achieve their long-term financial objectives. In doing so, we strengthen the advisor-client relationship and contribute to financial well-being and peace of mind.
Colleen Kelleher Sorrentino, CFA is with Kelleher Investment Advisors, a New York-based investment advisor. Stacey Mankoff is with The Mankoff Company LLC, a New York-based marketing firm serving the financial industry.
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Read more articles by Colleen Kelleher Sorrentino, Stacey Mankoff
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
