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Like some of our investment advisory clients, I fear the market sometimes. The way I combat that fear is with information. Markets go up, markets go down. Here’s what’s normal. Here’s where we are.
Last month, in conversation with one of my more nervous clients — when I had finished my list of market facts and cycles, when I had emailed my short and long-term charts — she replied, “And I’m supposed to be content with that?”
Essentially, yes. That’s the answer most financial professionals would have, if they’re honest.
I suppose you may find it strange, but that’s the kind of challenge I’m up for. It’s a challenge to try to keep clients calm when markets are anything but calm.
In 2008, many of my friends who are financial advisers were deeply affected by the trauma that clients experienced as markets worldwide experienced the worst decline since the Great Depression. They remain affected by it. Trauma is not too big of a word.
Today, I don’t fear the downturn. I speak.
In a downturn, people’s attention is most focused on sliding markets. They may hear what you have to say, but they may not listen to your various messages: Markets are risky. They go up and down. If you don’t take market risk, you limit your potential for capturing the gains when they do come. If you do take market risk, you’ve got to be able to see that downturns are a part of the deal. Shall I get out my trusty charts now and show you just how common it is for markets to fluctuate?
Probably I’d bore you if I did. What you probably want to know is what’s a good strategy for dealing with a volatile market.
You could move some money out of equities, of course. Or we could layer into the portfolio some exchange-traded funds that continuously move out of the most volatile stocks and into the less volatile ones. Both these moves will limit returns, but will also make the trends less upsetting.
But even if we lessen the throbbing uncertainty, we cannot eliminate it.
No one has overcome market cycles yet, no matter what they promise. Cue the charts.
And here’s the flip side: For all the confidence the clients might have in us, we can’t tell them when the markets will tumble. We can’t tell them when to run for the hills. Because no one can.
I feel I have gone down this road to every end I can find, looking for the analytics, the portfolio theory, the guru, the portfolio construction expertise, the economic underpinning, the macro-down and the bottom-up way of selecting exactly what would be the best globally diversified portfolio. I’ve made my own deal with risk and return. But none of that work changes the simple fact markets do go down periodically. Personally, I am content with that.
But for that client, this is not a comfortable fact.
It’s humbling, really, to have a discussion in which you cannot provide something which is very much wanted.
But it’s a smart discussion to have.
The client told me that when the market goes up again, I have permission to say, “I told you so.”
The market is up nearly 10% since we had that conversation, so I might. But when times are good in the markets, it's the same as when times are bad: Clients don't listen.
Harriet J. Brackey, CFP, is the co-chief investment officer of KR Financial Services, a South Florida registered investment advisory firm that manages more than $330 million. She does financial planning for clients and manages their portfolios. Before going into the financial services industry, she was an award-winning journalist who covered Wall Street. Her background includes stints at Business Week, USA Today, The Miami Herald and Nightly Business Report.