…and how to calm their clients’ fears
by Don GarmanMr. Garman is the Founder and Chief Investment Officer of Mirador Capital Partners and Co-Founder of Tri-Valley Ventures. Visit here.
When markets get rocky, investors invariably begin to doubt the stability of their portfolios. Investment advisors who have lived through multiple economic expansions and contractions can tell you first hand that these are the most common calls they receive from clients when stocks are perceived to be risky.
1. Should I Go To All Cash?
Regardless of their healthy role in balancing the market, recessions and even small downturns inspire fear in investors of all ages. At every indication of an economic slump there is a group of people who, like clockwork, remark that they are about to sell their securities, creating an all cash position. It’s well understood by experts that these individuals believe they can “time the market.” The truth is that there is mountains of evidence showing that investors who stay invested through both bull and bear markets benefit more financially than those who try to exit and enter opportunistically.
2. Why Aren’t You Buying/Selling This Specific Stock?
Investors will often become enamored with a company and wonder why their advisor has not purchased it for their portfolio. The advice here is to remember that while the client may have read about the company in the newspaper that morning or even have a friend or family member who works for the company, the investment advisor and his or her team has likely spent hours evaluating the strengths and weaknesses of the company. If you hired an advisor you’re likely interested in their expertise.
3. Why Isn’t My Portfolio Up/Down The Same As XYZ Index?
Naturally, humans are a competitive bunch. It should come as no surprise then that people become irritated when they are being beat by an average. Investments are not always going to soar above benchmarks, and clients should understand this. It is the investment advisor’s responsibility to manage expectations. Similarly, advisors investment selections should not be brought to trial against the various indexes that are quoted on the nightly news. It is important to remember that financial advisors often bring more to the table than investment selection — most offer financial planning, philanthropic guidance and help with family affairs.
4. When Will This End?
While this is often simply an attempt at commiseration, it’s important to understand that there are booms and busts and there will be fruitful days ahead. After all, it is the stock market. If you’re uncomfortable with the risk that your advisor is taking, it may be time to find a new advisor who is interested in protecting your capital as much as growing it.