Normally, I receive very few client phone calls when stocks decline. I jokingly think of myself as being like the Maytag repairman in that sense (remember the old TV commercials?). However, during the past few weeks I’ve had calls from clients who were a little nervous about the markets. In this post, I’ll share a few things I’ve been telling clients to allay their fears.
During times like these, perspective is a wonderful thing. Experienced advisors understand this very well. Even a new advisor understands that stocks contain risk and will rise and fall to a greater extent than many other financial assets. Clients, on the other hand, as intelligent as they may be, typically don’t possess this perspective since this is not their primary vocation. In short, they haven’t spent hundreds or thousands of hours studying the financial markets.
Therefore, when stocks fall, at the point where they reach their pain threshold, their emotions become more dominant in their decision making. It’s entirely understandable why investors often head for the exits when stocks fall. Conversely, when stocks rise, and especially after rising for a while, they may become more comfortable and invest more.
Numerous surveys have shown that the retail investor tends to load up near the top of a bubble and get caught when prices fall. This is why clients can benefit from working with a good advisor.
NOTE: As I write this, the Dow is down -9.65% for the year. It was down 12.1% after it closed on August 25, 2015.