With volatility well and truly back on the agenda, advisors can expect to receive a barrage of calls from panicked clients. Encouraging a sense of calm, and perspective, is crucial for advisors who want their clients to avoid making costly mistakes.
“The most important lesson I've learned over time is that you have to contain your emotions,” said Tim Armour, Chairman and CEO at Capital Group. “It's not easy to do on the way up, and it's not easy to do on the way down, but it is your enemy in terms of creating wealth over time. Sticking with the fundamentals, employing good asset allocation, and maintaining a balanced portfolio with a long-term horizon is the best approach.”
Armour was not surprised by the severity of the recent selloff; in fact, he was more surprised at how fast the market was moving up in January, which, he said, seemed out of sync with the underlying fundamentals.
“I am never surprised by what the market will do in the short term… a sharp pullback doesn't surprise me,” said Armour. “The sharpness of the decline was partly driven by algorithmic trading. That said, it's clear that market volatility is on the rise and that trend will probably continue for a while.”
With economic fundamentals continuing to look strong in North America, Asia and Europe, Armour feels that the current environment continues to look positive for investors. Interest rates are still low on a historic basis and inflation also remains relatively low.
“Revenue growth for companies is pretty good because consumption around the world is improving,” Armour said. “My view is that corporate earnings will continue to be strong. So the backdrop continues to be pretty good.”
“We were overdue for some kind of correction. As you know, we remain focused on the long term. We still feel good about the economic backdrop for corporate earnings, and we think there are plenty of opportunities. I am not overly concerned about this pullback. Markets do better over the long-term when they experience corrections periodically; they can't go up all the time.”
Why switching FAs is a challenge, even with disclosure
'Why I had to change my success strategy'