What I tell my clients during periods of market volatility

Posted 16 February 2022 by Tom Skinner

As advisers, there’s nothing that fazes us less than a stock market dip.

We know the market is resilient. We know that panic is a waste of energy. We know that a market downturn is nothing more than a buying opportunity. Who doesn’t love it when something they buy every month goes on sale?

Not everyone knows though. If your clients feel anxious, read on. Here’s what I tell my clients during periods of market volatility.

Their feelings are normal

At times of financial uncertainty and stock market volatility, we know that many clients stop thinking rationally.

Previous plans and aspirations fly out the window. They’re tempted to make what we consider to be financially reckless decisions. They ask questions that can easily be answered with one word: “no”.

But it’s worth remembering that the panic many people experience when they see the value of their portfolio drop is natural, evolutionary even.

Planning far into the future used to be a useless skill in prehistoric times. It was more important to simply survive one week to the next. Responding to threats quickly was crucial to our survival. Stoicism, in contrast, would’ve caused us harm.

Even now, we’re naturally hardwired to respond to external stimuli. We cough if there’s smoke in the air. If you ignore that, it’s not long before the fire in the kitchen will overwhelm you. There’s therefore no point in saying: “Don’t feel anxious.” The coughing is telling you that you must do something.

With that in mind, rather than judging clients for doing what we’re programmed to, let’s offer sympathy and understanding.

Instead of trying to avoid these feelings, I encourage my clients to acknowledge their emotions and learn to live with them. It’s OK to feel anxious. Like most things that worry us, they pass.

Financial decisions based on facts, not feelings

Although our clients’ emotions are completely normal, I like to remind them that at times of political, economic, or financial uncertainty, we make our decisions based on facts, rather than feelings.

Here are a couple of common scenarios:

Feeling: The client is anxious that their retirement savings will be depleted.

Fact: We remind them that we’ve used specialist wealth mapping software to put a detailed plan in place which will ensure we can build wealth for retirement without taking on unnecessary risks.

Feeling: The client believes they should sell their investments before they experience a bigger fall in value. They want to move the money into cash for safety.

Fact: We remind them that they’ve got another 10 years until they need the money and inflation is not looking great at the moment. Holding large amounts of money in cash will only see its value depreciate.

Let’s remind clients that selling your stocks during a routine dip, correction or bear market is like acting on an argument before a good night’s sleep.

When you wake up the next morning with a fresh outlook on the situation, the disagreement is rarely as bad as it seemed in the heat of the moment.

When things are back to normal, life will be a lot easier if you have made decisions with your future-self in mind, rather than focusing on how you feel in the present.

Remember the plan

Have you ever had a client come to you in despair because their portfolio is down by 5% and they’re desperate to know how you can fix the problem? I have.

After explaining that no, I cannot get on the phone to NASDAQ and politely ask them to restore my client’s portfolio to how it was a month ago, I like to remind my clients of The Plan.

Rather than focusing on numbers, percentages, and stock market jargon, I ask them to recite their goals.

“If we sell all your investments and move the money into cash,” I warn them, “the only way is down for your hard-earned savings.”

If, however, we ride out this storm, we can continue to go on three holidays a year, buy that investment property in two years and achieve early retirement.

In some ways, market turbulence is very much like F1. The cars go round the track and people have nothing to say, but as soon as there’s an incident, it grabs people’s attention.

When it comes to investing, the portfolio is simply the fuel that generates the performance, and the plan is what ultimately matters. If the plan is flawed, we can change it, but that’s what we need to be focusing on, rather than obsessing about the market and where it might be going next.

Let apps serve as a reminder that all this is normal

Apps can come under fire for letting people have constant, instant access to their portfolios.

But stock market anxiety didn’t begin with the invention of the smartphone. If you’re old enough to have invested in the 90s, you might have been guilty of checking stock prices on Teletext only to spend the rest of the day in a terrible mood.

And yet, I’d argue that looking at your portfolio daily can remind you just how normal these fluctuations are.

Those who check their accounts often enough will know that this has happened before. They may recall the last time a feeling of stock-induced panic washed over them. At least this time, they can comfort themselves by remembering it’s only temporary.

I’ve noticed that by talking to clients about how they feel each time markets drop, particularly my most anxious clients and documenting their key thoughts and referring back to them; they are becoming more desensitised to market volatility.

Zoom out

Sometimes, the solution to my clients’ worries is as straightforward as two little words: zoom out.

I remind them that they’re focusing on a very small part of the stock market’s long and profitable history.

While there is risk involved and many people have lost money, it’s also made many millionaires. That’s something that’ll never happen if you hold all your money in cash or sell your investments every time there’s some volatility.

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Tom Skinner

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Tom Skinner