With the major stock market indexes all heading south since the start of the year, financial advisers are mostly telling clients to sit tight and ride out what is an inevitable reality of investing. But with volatility hovering at levels not seen since the start of the global pandemic two years ago, inflation hitting a 40-year high, the Fed signaling higher interest rates and geopolitical risks heating up, conversations with clients can go in any number of directions.
“There’s always a percentage of clients who get nervous, but we’re just telling them that this kind of volatility is normal; what happened last year, when there were no major market pullbacks, was not normal,” said Blair duQuesnay, investment adviser representative at Ritholtz Wealth Management.
The abrupt market pullback in January, which has the S&P 500 Index down more than 8%, the Russell 3000 Index down more than 10%, and the Nasdaq Composite Index down more than 12%, could just be a repeat of March 2020, when stocks went down fast and recovered almost as quickly.
But as optimistic as advisers like duQuesnay try to be, there’s no denying the global pandemic wasn’t in anyone’s forecast two years ago, in contrast to the current economic landscape, which is littered with reasons for shaky markets.
“Every time the market starts to rumble, we address what the narrative might be and this time that’s inflation, the Fed and geopolitical tensions,” duQuesnay said. “But what we should be worried about is the things we don’t know.”
Even with that state of mind, duQuesnay said advisers at Ritholtz remind clients to stick with the plan that was in place before the markets got choppy.
“We have a plan we make before the market sells off, so we’re executing the plan we already have in place,” she said. “Rebalance if needed, looking to strategically to move out of concentration risks in a tax-efficient manner, and tax-loss harvesting.”
Focusing on the plan is key, especially for younger and less-experienced investors, said Andrew Guillette, vice president of Americas Insights at Broadridge.
According to a Broadridge survey of investors in November, 49% of those with a formal financial plan felt better about their financial situation compared to 12 months earlier, versus the 22% of investors without a formal plan who felt better.
Also, 78% of investors with a formal financial plan reported a positive outlook about their personal financial situation over the year ahead, compared to the 44% without a plan who felt the same way.
Acknowledging that the survey was conducted prior to the recent market volatility, Guillette said the same survey today would likely produce different results. But the point remains that financial advisers play …….