Following a five-year bull market, investors are apprehensive that a large drop is imminent around the corner.
Market swings are basically are among the top things in the mind of people who can’t seem to relax following the 2008-2009 stock market crisis. Investors are weary that another event in the five-year bull markets could suddenly turn.
Clients of financial advisers are worrying that market swings are becoming more of a recurring trend and they fear that they are running out of money in retirement. The majority of investors can’t seem to erase the awful memories back in 2008 especially during the peak of the financial crisis.
The Dow Jones Industrial Average dropped 54 % between 2007 and March 2009. After that plunge, the market has risen substantially 133 % from March 9, 2009 to September 29, 2014.
Losing hurts significantly more than winning would feel ecstatic. Many older investors are specifically cautious because they are taking retirement distributions or will be needing to do so in the future.
Advisers can better ease their clients by describing market swings in a long-term context. For instance, advisers can share statistics with clients in order to show how long it would normally take for markets to rebound following a downturn and how stocks wielded decent long-term returns albeit market fluctuations.
Other client strategies also includes the holding of equivalent ‘Back to School” night for advisers in telling their clients what to anticipate for the year. Moreover, advisers can also prepare clients for future risks. For instance, advisers can show estimates of how much money clients would lose should the S&P 500stock index dropped 20 %, 30 %, or 40 % respectively and the next course of action that clients should prompt is switching to a less volatile investment or at least assess their risks thereon.
This type of ground work definitely a part of every first meeting with new clients which must be given emphasis as most clients as a result normally fails to ask about market fluctuations. By using stocks in order to maximise growth, while balancing portfolios with lesser volatile assets such as short-term bonds and Treasury Inflation-Protected Securities (TIPS).
The approach is straightforward in easing client’s minds since they know that part of their portfolio is safe from market swings and always available for income.
Such strategies have led to its popular practice since the 2008 global financial crisis. Some advisers are now pitching outcome-oriented investing that focuses on client’s objectives such as having a certain dollar amount for retirement or placing their children through college, instead of returns.
The adviser may suggest dividing assets into ‘buckets’ with each designed for specific objectives such as achieving growth, hedging against inflation or preserving capital.
Some advisers even go further when adding investments to client’s portfolios. They include commodities such as timber or gold, which in most cases can move in a different direction from stocks or market-neutral funds that claim to do well regardless of the direction of the market. It could be cautioned however, that the risks and fees associated with some such strategies could overpower the benefits in the long run.
Adviser should create stability into portfolio by adding less-volatile bonds, shares of dividend-paying companies and quality big companies that have a market value over $5 billion. Furthermore, it is imperative that having such conversations regarding risk and volatility can separate the witty and more responsible advisers from the average and mediocre ones.