These days, client meetings are more enjoyable. Strong market returns will do that. It’s at this time that our role as “financial educators” and managing investor behaviour is easy.
At some point, the market will weaken and clients will no longer have the feeling of invincibility. In fact, tests have shown that, a moderate amount of sudden stress can make people more sensitive to losses and more indifferent to small gains.
It is our role as advisors to prepare our clients for this sudden stress and help them avoid doing something emotional. We help our clients focus on the overall portfolio when reviewing performance, as opposed to performance of individual holdings or accounts. Also, our re-balancing process provides for a systematic approach to “buying low and selling high” and avoids making decisions based on reaction and/or anticipation of market performance.
Jason Zweig’s article in the Wall Street Journal echoes our sentiment of implementing procedures to prepare clients for inevitable market volatility and the accompanying sudden stress.
