The best advisers don’t lecture their nervous clients about staying calm. Instead, they inject a rational viewpoint into the equation. When clients are losing their cool, advisers must keep theirs. A common approach is to sit a client down and review not the recent performance of their holdings, but the original reasons that prompted the client to invest. “The first thing we do is revisit why we’re in the market in the first place,†says Raiford. Drawing clients’ focus from the media chatter to their long-term financial plans, such as funding their retirement or putting a loved-one through college, brings about much-needed perspective, he says.
Unquestionably, the current down cycle is not a typical market correction. But while they’re waiting for the market to rebound there is something investors can do: rebalance their holdings. Certainly a portfolio should be well-diversified. It should contain a mixture of riskier, aggressive investments and safe ones. And, naturally, investors approaching or already in retirement should have a more conservative portfolio overall, advisers say. “This is a cycle, not a cliff,†Raiford points out. “The world is not flat; we’re not going to fall off the edge here.â€
To bolster his argument, Raiford walks investors through the history of the market’s crises, from the Great Depression to the double-digit inflation days of the 1970s, and shows them that it has always come back around.
Allen Bruce, a financial adviser with independent broker-dealer H. Beck Inc. in Silver Spring, Maryland, manages approximately $40 million for roughly 200 clients. One client, a widow in her early 60s, recently told him she wanted to get her money out of the market. More than 30% of her portfolio was in cash; most of the rest was in conservative equity funds and bond funds. “She was alarmed about all the noise around her,†says Bruce, who pointed out that her cash gave her plenty of room to retire, as planned, in a year. What’s more, he reminded her that she had also panicked during the dot-com crash–after which she stayed in the market and did well. While the current market situation is scarier than the earlier one, “it helps that I had a track record there,†Bruce says.
This sort of reassurance must be mixed with honesty, he adds. It’s all well and good to tell clients that the economy and the markets will rebound–but Bruce admits to them that he’s not sure if it will take 18 months, two years, or five years. “I don’t have a crystal ball,†he says. “I do know that the only way to make sure you’ll lose is to get out now, when the market is down.†Jones strikes a similar note, telling clients that “2009 probably won’t have a lot of good news, but hopefully it won’t be as bad as 2008.â€
Most often these days advisers are persuading clients not to quit the market. There is one test, however, several planners say they use before blessing a client’s decision to cut back on risk: the sleep test. The best advice is pointless when clients are suffering emotionally, most advisers agree. “I don’t want you losing sleep at night,†Jackson tells those few clients who can’t stand the pain. “So let’s make a change.â€
This story originally appeared in the March 2009 issue of Black Enterprise magazine.