If any habits have been retained throughout the last several years, panic is among the top contenders — and for good reason. Talking clients off the figurative edge is one of the most important parts of the job. The COVID-19 pandemic changed life as we know it, and economic uncertainty has seemingly become the norm when managing our clients’ investment portfolios. Any good advisor reminds their client the long game is more profitable than getting caught up in the frenzy of a second quarter slump — but that doesn’t mean you still won’t get calls from panicked clients. Take a deep breath and help them put it into perspective.
The Sky Is Falling, But Not Really
In a turbulent market that has cycled through unemployment and inflation at rates we haven’t seen in decades, the panic button has never seemed more accessible. To add insult to injury, the recent failure of Silicon Valley Bank is a fearful reminder of what could lie ahead for Wall Street, the technology industry and the banking system as a whole.
Despite this chaos, remind your clients that the market’s 10 worst days in history often occur within a month of its 10 best days. Even though we are in a market that right now is uncertain, to say the least, the pendulum has always swung back. A scared, reactive client could miss out on opportunities for significant returns, causing more harm than good by trying to move too quickly when fear strikes.
Staying the course sounds like a cliche, but one could argue that the root cause of SVB’s collapse is poor management of its asset-liability mismatch because of a tumultuous economy. Remind spooked clients to think about investing in terms of years and decades, not days and weeks. Adverse events in the economy can feel like the onset of a panic attack, but oftentimes a simple wellness check is all that is needed to prevent any real harm from being done.
The Doctor Is In
With the recent media doom and gloom, SVB’s failure can seem to foreshadow the collapse of all your clients’ financial goals — but it’s also a great reminder to connect with all of them for a wellness check. Now is a perfect time to check in with the following questions:
- What Inherent Risks Are We Carrying, and Have We Rebalanced?
The way to combat major adverse events is to ensure balance. If you have clients planning to retire in five years while heavily invested in emerging tech companies, it may be time to realign to better meet their long-term goals. As advisors, our goal is to ensure we get them where they want to be financially, with the least amount of risk.
- What, if Anything, has Changed (Personally and/or Professionally)?
A client calls you and wants to go to cash — ask them, why now? The only time we should advise major portfolio changes is with the advent of a new stage in life. Getting married. Changing careers. Sending children off to college. These are events that call for a more heavy-handed approach — not the latest Wall Street scandal.
Invest in a Fitness Plan
Once you’ve conducted wellness checks, a smart, well-articulated fitness plan will help you steer clear of future panic attacks.
Long-term track records are still strong. Remind your clients that they would never attempt to win a marathon by starting off in a sprint, and recent data from JPMorgan reminds us that short-term returns aren’t great.
Over the last year, a 60/40 portfolio of US stocks and bonds is down -12.4%. Over the last 2 years, that portfolio is up 5.8% (2.9% annualized). However, over the last three, five, and 10 years, the annualized returns are 6.2%, 7.3%, and 8.4%, respectively. The present era of high inflation and the aggressive central bank tightening cycle is taking a toll, but the long-term track record is still strong.
Long-term goals, coupled with smart diversification and alternative investment strategies, can bring ease to even the most volatile situations.
For example, ETF investments provide access to a diverse mix of asset classes at a lower cost with more trading flexibility and tax efficiency. We work with a range of clients who opt for concentrated exposure in a multi-strategy format, targeting positive absolute returns uncorrelated with broader markets over a full market cycle — but regardless of your investment strategy, make sure it’s proactive and not reactive. Panic is not the solution. A fit financial strategy will help you steer your clients through the highs and lows of the market for decades to come.
Play the Long Game
The swings of the last few years have been steep, but panic leads to more mistakes than success stories. If you help clients stay the course and conduct annual wellness checks on their portfolio, events like the SVB collapse or the pandemic of the century will be nothing but a blip on the radar of their financial story.
Paul Massey and Bill Romans are managing partners at Massey Romans Capital.
