Coronavirus is circling the globe and markets are making headlines with some scary record-breaking multi-day drops. The U.S. stock market suffered its worst week since 2008. Financial advisers are getting phone calls from panicked clients who just watched someone on TV say markets are going to drop further. Some clients are asking their adviser if they should get out of the stock market and go to cash. Amid this turmoil, how do financial advisers stay calm? Are they just pretending while inside they’re just as nervous as you are about their own money? After all, they have retirement savings, bills to pay and families to support.
Here are four common behaviors I’ve observed during tumultuous world events while working alongside fellow fee-only certified financial planners managing diversified portfolio strategies using index funds and exchange-traded funds. Advisers spend a lot of time educating their clients about what it means to be a successful investor — most importantly to expect sudden drops in the market. I’ll say this up front: the advisers I’ve worked with never sold their own investments while markets were getting hammered. What other habits of theirs are effective?
1. They don’t constantly look at their account balances: For one thing, advisers are too busy answering client calls. Most advisers wait to check their own accounts after the markets have recovered, if at all. Advisers know first-hand how such behavior can destroy wealth.
Are you obsessed with the latest market carnage or even worse, making impulsive changes to your investment accounts? Try creating a longer and complicated account password. (We all need to do this to make our accounts more secure.) Then forget to remember it.
2. They take care of themselves: When the going gets tough, advisers get plenty of exercise and sleep, eat healthier, and spend time with family and friends. In this way, they’re better able to help their clients gain perspective and peace around the market’s turmoil.
3. They don’t try to catch a falling knife: Ever notice how after markets fall sharply, there’s always someone quoted in the financial news or on TV saying the market is now a “buy” and “fairly valued” or even “undervalued”? Ever wonder how they know this? They don’t.
Plus, these “experts” may be speaking to an entirely different target audience than you, which includes day traders, short sellers, momentum traders, and various other kinds of professional money managers who make big bets on the short-term direction of the markets. None of these categories describes you, but there’s no disclaimer running across the bottom of your TV screen telling you this. Advisers are aware that market corrections can end quickly or drag on for weeks or months. In the worst bear markets, it feels like stocks will keep falling forever. Then, when you least expect it the market will begin to rise.
So instead of trying to guess entry points, advisers do something boring but tried and true. They proceed with the scheduled annual rebalancing of their own and their clients’ accounts, no matter what’s going on in the markets. This assures they’re increasing their holdings in asset classes that have fallen (losers) and reducing their investments in asset classes that have done well (winners). This is one of the surest ways to buy low and sell high without trying to time the market.
4. They know it isn’t different this time:. The scariest world events are always unique — that’s why they’re so scary. We don’t know what to expect at such times because we haven’t experienced anything exactly like it in the past.
This time the scary world event is novel coronavirus COVID-19. I’m not downplaying it at all because it’s a legitimate fear. Last time the financial markets were rocked so hard, a dozen years ago, it was due to the housing bust. Some “experts” predicted then that the entire banking industry was about to fail, sending the United States into chaos. That was a frightening time too, but the reality in these situations has been that the world survives and markets eventually recover. With that in mind, financial advisers in this current market downturn aren’t about to go to cash or lose sleep, and you shouldn’t either.