One week into 2016 and the TSX is already down more than 5% year-to-date and that’s got financial media trotting out the usual articles about investors coping with market volatility.
While understandable, words in a newspaper aren’t going to prevent investors from making poor decisions and selling at precisely the wrong time, turning a short-term paper loss into a permanent real one.
This is an advisor’s Super Bowl.
It’s precisely these types of events why your client hired you in the first place. Forget about your value as an asset allocation or portfolio construction expert, your real value to clients is your ability to reassure them that you’ve been through this many times in your career and your clients always lived to fight another day with portfolios intact ready to grow anew.
By now many advisors have either been in contact with clients via email or over the phone to explain exactly what they’re doing to handle the latest “crisis” for their clients. For most of you it’s simply to stay the course but the client must buy in too.
“This week’s reality however, has us in the midst of a nasty start to 2016,” wrote one Ontario advisor to his clients in an email to clients. “I hope that weeks from now I can say that we got the worst of the year over with quickly and things look great, but China's currency devaluation efforts have sent a shockwave through all markets, impacting oil and all commodities and causing panic selling around the world.”
This was part of an email that let clients know that annual statements had gone out and their portfolios had outperformed the various market indices; and even better they were ideally positioned with significant cash positions to take advantage of panic selling when it becomes clear the markets had stabilized.
The advisor was honest that things weren’t looking good but also explained how they planned to deal with the current volatility.
“I was asked today when the market was going to bottom and I'd be misleading you if I said I knew; but I do know that reacting to world events is not a good idea,” wrote the advisor to clients. “My counsel has kept most of you in large percentages of cash (particularly US cash) since last summer’s Greek and then Chinese challenges.”
The advisor followed with a simple pledge to clients about the future.
“It’s in times like this that we don’t want to follow the crowd in selling; we want to go against the crowd and buy and that is why I’ve had many of you with cash,” wrote the advisor. “My advice is to remain patient and we will pick our moment to buy. I'm not saying tomorrow is the day, but I'll be speaking to you all very soon.”
Stay the course.
Three words worth their weight in gold.