Whenever there is a shake-up in the market, there are stories shared and lessons learned. Market downturns are the place where a client discovers, for better or worse, if the financial advice they got from their advisor was the right advice.
When things are going well, and the bulls are running, bad advice gets obscured amid the excitement. Sometimes even the most incompetent and untrustworthy planners look good as long the moon is waxing.
An oft-quoted adage says, “A rising tide lifts all ships.” But the real test of whether the advice they are getting is sound or not is what happens to their money when the market goes off track.
Because the human brain hates uncertainty, risk, and bad news, we have a kind of collective amnesia when it comes to the carnage of the last recession. The longest bull market in history has caused many people to forget how much they lost and how badly it hurt.
Once the bruises of 2008 healed, a punishing environment for savers had some advisors nudging even their retired clients back toward Wall Street to chase returns and take on risk.
While there were indeed indications that we may have been ready to enter a bust cycle before COVID-19, the pandemic certainly has hastened the end of the bubble in dramatic ways.
It also created a golden opportunity to help clients re-evaluate their risk tolerance levels. Having been in a bull market for so long, most people don’t even know what their tolerance level is or where it should be. They haven’t had to worry about it, until now.
Many of my clients remember 2008 very well. But some of them have gotten so used to getting significant market returns that they’ve forgotten how it feels to be on the losing end of things.