Given the recent 10% stock market decline from the May 2015 highs, financial advisors are receiving calls and emails from concerned clients. If a client called me, my extended elevator speech would be: “I understand your anxiety. The market has declined and been quite volatile recently. Although investors lost confidence due to short-term international factors, please remember that we are in a long-term bull market that started in 2009 and is almost seven years old. Historically, there are usually multiple 10% to 15% corrections within a bull market and we are experiencing one now. Bear markets tend to take place in advance of recessions. There are hardly any indications that we are entering a recession:
- Outside of the energy sector (which has declined due to non-US influences), domestic companies are experiencing moderate earnings growth.
- Interest rates and inflation are low and are not hurting economic growth.
- 2015 auto and housing sales were strong indicating that consumers are willing to spend again.
“You will recall that we own a diversified portfolio of stocks, bonds and alternative investments. Not everything declined last week. In the stock market, utilities were flat for the week. Bond and precious metals funds had weekly gains. As I always say, we cannot manage the portfolio’s return, only its risk. The market may continue to decline. But I believe we are closer to the bottom than the previous high. We have contained the losses and are positioned for the next stock market rebound.”
Obviously, financial advisors need to modify the conversation to fit client circumstances. By bringing a long-term perspective of the markets into focus while reviewing the client’s long range financial goals and objectives, advisors should be able to address and alleviate clients’ fears.
