The lead article in the email I received from Investment News was titled, “This Week Marks the Beginning of a Seasonal Rally.” The article notes that the six-month period beginning at the end of October “historically trounces the performance of the prior six-month period” and goes on to explain the rationale and indicators.
Was it that long ago that everyone was concerned about rising interest rates and the inevitable recession on the horizon? And what about the effect of a contentious election cycle?
Whether you are a bull or a bear (or like me, have no idea!), what matters is how well your clients are prepared for whichever way the market goes. And that means not only their financial plans and investment portfolios but also sufficient psychological preparation to keep them from falling victim to bad decision-making when volatility occurs.
Several years ago, we published a script that you could adapt for use with clients, and now might be a good time to revisit it.
To help your clients be better prepared for the next major pullback, you might consider a conversation like this one.
|[Client’s name], we’re investing [xx]% of your assets in a diversified portfolio of stocks. We’re doing that because, in order to meet your retirement goals, we need to achieve a level of growth beyond what is possible in risk-free investments like cash or CDs.||You could get into a discussion of all the various forms of risk in addition to the loss of principal, but I won’t do that here.|
|However, in order to minimize our risk, we’re going to….||Here you can talk about your risk-mitigation strategies, such as broad diversification, investing globally, etc.|
|But, it’s important to understand that in the short run, we can’t eliminate risk. It’s just not possible. That’s why we….||Here you can talk about the funds you are leaving in cash for short-term needs.|
|One day in the future and I don’t know when that will be, we will have a major downturn in the market.||Clients may think we know what the markets will do next, but we don’t. However, we do know there will be up markets and down markets.|
|So, I want you to remember that on this day – [today’s date] – we had this conversation, and I told you that this would happen. I am telling you this so you will remember our conversation and so you will remember why we included stock investments in your portfolio – for long-term growth that we can’t get from risk-free investments – and that we took all of this into consideration when we put your portfolio together.||You want your clients to remember this conversation, so be very clear in defining your purpose and what you want them to remember.|
|When that happens, it’s fine if you call me. And if you call me, I will remind you of this conversation. But maybe you will remember it on your own and say to yourself, “Yes, [your name] told me this would happen.”||Planting seeds for what to do when that day comes.|
Recently, several of our clients have mentioned incorporating new risk assessment tools into their practices. Perhaps now would be a good time to introduce them to your existing clients along with a conversation like this one about risk.