With a drawdown of only 5% in the world’s premier index, the S&P 500, 2021 conveyed the message that market returns are easy to come by with minimal downside movements.

    However, as you and I know, one cannot have market returns without enduring volatility. The danger is that our clients have forgotten this.

    So, as we prepare for the year ahead, we need to make sure we don’t become complacent in preparing our clients for the inevitable return of ‘temporary market declines’.

    The behavioural adviser shines during the tough times

    It’s hardly going out on a limb to predict that this year will see the return of more substantial volatility. Bring it on I say, the behavioural adviser shines during the tough times. 

    With increased inflation now a reality in the developed world, fresh concerns about geopolitical conflict, and midterm elections in the US, the possible triggers for market volatility are many. 

    Already we have seen a deep decline in January, wiping out a large portion of last year’s gains. This has unfortunately surprised a few ‘investors’. But this is what the market does and will continue to do. 

    Before we can be useful to our clients, we first need to internalize the truths of market corrections. We need to understand how they fit into the arc of market history so that we can simply and effectively coach clients to see these events for what they are, an opportunity to ‘earn’ the returns that come from behaving like a grown-up during uncertain times.

    Knowing that it’s not 'different this time' is a prerequisite for explaining to a distressed client why ‘losing’ a few years of retirement income is not something they should be concerned about. And of course, for our clients who are still saving, a decline is a gift from heaven! You are buying units at knockdown prices. 

    Best of all is being able to demonstrate with a robust cashflow planning tool that their lifetime plan succeeds in spite of the current declines. 

    Do you (and your clients) understand the average intra-year decline, the frequency of bear markets, the proportion of positive return years, and the probability of capital loss over different periods?

    While this data is important and can be useful in explaining core concepts, what they need more than all of this is you. They need you to be confident in what you believe and what you’re advising them to do. The messenger is the message, as they say. We are the last line of defence. 

    Are you ready to be the adviser they deserve?

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