After 10 years of a rarely interrupted bull market in equities, even clients who lived through the Tech Bubble and the Financial Crisis may have forgotten about significant market downturns and long periods of volatility. The chaotic market activity we are experiencing this year is unprecedented. In the month of March the average percentage daily move of the S&P 500 was 5.2%! The good news is that we can emerge stronger for it.
Talking about volatility the right way is essential. Focus on what you can control and positively influence, reminding clients what is in their control as well. Most important is getting your clients to see the upside of volatility, and planting that seed well in advance.
Here are six valuable discussion topics focusing on the things
that you and your clients can control:
Diversification as a
way to manage volatile
The importance of asset allocation
and how to rebalance tactically when
Historical – and personal –
examples of success during
Tax efficiency, to keep as
much in your accounts as
Creating realistic long-term goals,
and staying focused on them during
all market conditions
Which active and passive
portfolio managers are in
Prudent advisors and investors are able to identify buying opportunities by using a disciplined process that accounts for both fundamental analysis and top-down macroeconomic insights. Economic indicators can tell you about what’s going to happen in the markets. While they don’t predict specific events, indicators point to broader trends. For example, unprecedented changes to fiscal and monetary policy can have an unpredictable impact on large and small businesses, the capital markets, and the banking and housing industries. The consequences of the unprecedented changes to policy will be both positive and negative impacting interest rates, inflation and investor behaviour.
Looking ahead, are your clients’ portfolios allocated for today’s changing fiscal and monetary policy environment or tomorrow’s? When bottom-up fundamental research and topdown macroeconomic insights align, it’s time to rebalance.
Volatile markets don’t have to cause volatile advisor-client relationships. It all depends on how well you have prepared your clients. Whether or not these events occur, in today’s environment, clients should be prepared for:
What will volatility in 2020 create? Relationship-building opportunities. Ironically, it’s harder to build trusting relationships when everything is running smoothly. Client relationships created during good times have never been tested. It is during times of uncertainty, adversity and challenge that the strongest relationships are formed.
What else will volatility in 2020 create? Investment opportunities. With growing distance from a market low, it becomes increasingly difficult to find great investment opportunities. The best portfolios are created after the market has dropped or gone through an extended period of heightened volatility.
There’s little doubt that 2020 is presenting significant challenges. For those of us who are prepared, it will also present remarkable opportunities. Volatility in markets does not mean volatility for your client relationships. It means opportunity.