What a week in the market! My wife and I decided at the last minute to take a cruise. It began on Monday and the Dow industrials went down 775, then up 500 on Tuesday, then down, down, down (Yes, I was checking the markets regularly). What should an advisor do? Somewhat surprisingly, I have not been receiving phone calls from worried clients, even though they have a reason to be. The truth is I’m probably more worried than they are. My most aggressive client, in terms of asset allocation, is just under 55% stocks. Most of my clients are around 35% +/- and even with that conservative mix, the accounts are still trending down. I recall during the bear market of the early 2000s, clients with less than 20% in stocks, roughly speaking, were still seeing their portfolios grow while portfolios that were more aggressive than this were seeing losses. At least that was my experience.
Perhaps the most important role we, as advisors can play in times such as these is to call our clients and reassure them. Reassurance is a funny thing, though. It goes well beyond the usual, “Don’t worry. The markets will come back.”
Even though it’s true that at some point the markets will come back, this answer may be a bit too simple today. Our entire financial system has been on the brink of failure. In fact, we may never know just how close we came to the edge of the cliff. Now, we’re seeing European banks facing failure. Even though they have been struggling for many months now, it’s becoming more of a front-page story. So what we have here is an unprecedented global crisis. A crisis that will require a little more than the typical, “Don’t worry, the markets will come back,” even though this is true.
What’s the worst case scenario? Historically, if you bought into the market at its peak in 1929 you would have had to wait approximately 14 years to break even. Today, the Dow is roughly at the same place it was in February 2003 and in March 1999. Yes, it will come back, but when?
What would exacerbate this problem? Panic, that’s what. So while companies continue to “work out” their deleveraging issues, we, the advisors, must stand next to our clients and be able to explain the risks to them. They’re paying for our advice and this is an excellent opportunity to provide it.
Thanks for reading.