Recently, it seems like investors are being bombarded with more and more headlines about issues affecting the economy like the trade war with China, market-index performance, recession warnings and geopolitical tensions. A single day’s developments can cause panic for investors.
On Aug. 14, for example, the Dow Jones industrial average experienced its largest point drop of 2019 (and the fourth-biggest in its history), falling 800 points; the S&P 500 and Nasdaq decreased as well. The market’s performance that day was touched off by the benchmark 10-year Treasury note’s yield briefly falling under the two-year rate, a phenomenon which has been cited as a possible recession indicator.
The recent volatility and ongoing uncertainty in today’s market underscores the need for comprehensive, living-and-breathing financial plans. Investors can understandably become anxious when hearing about market downturns in real time and may choose to sell or make other rash decisions in the heat of the moment which, later on, they could regret.
Having a financial plan in place that an investor has crafted with their trusted advisor, spelling out instructions for how to react under certain market scenarios, can help investors refrain from possibly self-destructive actions. Furthermore, modern financial planning software enables advisors to interactively demonstrate for clients, remotely and in real time, within their client portal the effects that possible moves in response to current developments would have on their portfolios over the long term.
In this way, advisors can serve as a calming influence on investors during times of market stress, without even leaving their offices.
The financial planning process gives advisors the opportunity to begin collaborating with, and “coaching,” investors before they encounter market volatility. From the very start of the advisor/client relationship, the advisor can harness modern financial planning software to better understand the client’s investment goals and risk tolerance, and run unlimited scenarios to show the client the likely outcomes of different types of strategies and allocations.