Financial professionals can provide reassurance and guidance to clients amid recent market conditions
by Kelly LaVigneMr. LaVigne is vice president of Advanced Markets for Allianz Life Insurance Company of North America. Visit Allianz.com
Market volatility has returned in a big way in 2018. The most often cited measure of volatility, the Cboe Volatility Index (VIX), has averaged 16.27 so far this year, compared to 11.85 for all of 2017. This turbulence has become the new norm for financial professionals and investors alike and the impact has been notable. While over a third (35 percent) of Americans said they are comfortable with the current market conditions, a higher percentage (37 percent) report that this volatility makes them anxious about their investments, according to the 2018 Market Perceptions Study* from Allianz Life Insurance Company of North America.
The ongoing volatility comes with a responsibility to guide and advise clients on how to weather the ups and downs of the market. Regardless of how often we speak to clients about the probability of experiencing volatility in the market, when it arrives and account values fluctuate, it’s only natural for clients to experience some level of anxiety. Here are five tips to consider for your clients to help them alleviate the stress that comes with the economic roller coaster.
When the market rises and falls with increasingly regularity, it can be tempting for clients to check in on investments on a daily (or even hourly) basis. But obsessing over market activity and its effects on investments can only make matters worse. Remind clients that constantly listening to input from TV, social media, and even friends can stoke the panic, which may fuel a rash decision in an effort to minimize immediate losses. Encourage clients to turn off the noise and trust that their long-term investment strategy will see them through any short-term bumps in the road.
Stick to the Plan
As mentioned above, often times a gut instinct for investors when they see volatility is to sell, sell, sell! Remind clients to stay calm and maintain the investment course as this too shall pass and the market will almost certainly rebound., pulling investments out of the market leaves no opportunity to rebuild and experience potential future gains, which can lead to long-term negative consequences to a financial strategy.
Monitor Risk Tolerance
Most clients should understand that investing come with risk, but it can be hard to keep a level head when their financial future hangs in the balance. This is particularly true for older investors, who are closer to retirement and generally have a lower tolerance for risk. If needed, assess and adjust their portfolio without losing sight that while closer to retirement, the need for ongoing income within retirement should not be underestimated. If you have younger clients who have a higher risk tolerance with more time to rebuild and save for retirement, have them consider the great buying options that a down market offers. There is truth in the adage that bottom feeders can reap the big gains.
As a financial professional, you have likely already encouraged your clients to diversify their investments across a variety of assets. A volatile market can help drive home the importance of this message for clients more than ever. Take the time to reiterate this basic strategy and remind clients that diversifying one’s assets helps protect against loss and can help realize gains. However, keep in mind that diversification does not ensure a profit or protect against loss in declining markets.
Consider building in additional protection
For clients approaching or already in retirement, risk tolerance changes and investments that are more conservative often play a greater role in their overall financial portfolio. Depending on your client’s unique circumstances, it may be important for them to maintain some exposure to the market, but it is also generally wise to ensure the proper level of protection is built into the financial strategy.
To help protect retirement savings against stock market volatility, have clients consider the range of traditional, fixed income products that can provide solutions. They can include bond funds, exchange-traded funds, annuities, certificates of deposits and money-market funds. Annuities are increasingly being seen as an opportunity to offer a level of protection as well as a source of guaranteed income in retirement – no matter what the market does. Any annuity guarantees are based on the financial strength and claims-paying ability of the issuing company. There are many options from which your client can choose, including fixed or variable annuities, different allocation options, features that allow lock-in of any gains during or at the end of a contract year, and more. There are varying potential charges and additional fees to discuss with your client and, most importantly, in addition to understanding the differences between fixed and variable annuities, they should also understand how the product works, including inherent risks and limitations of the annuity.
One of the distinctions is that variable annuities are subject to investment risk, including possible loss of principal. Investment returns and principal value will fluctuate with market conditions so that units, upon distribution, may be worth more or less than the original cost.
Financial professionals have a duty to help guide their clients through this turbulence, and to offer them options to grow their retirement savings while still safeguarding their financial future. This is particularly important as a significant portion of Americans still fear a big market crash (42 percent) or a major recession on the horizon (44 percent). Advising your clients to stay calm and stick to their strategies throughout market turbulence can provide reassurance and help them reach their financial goals.◊
*Allianz Life Insurance Company of North America conducted an online survey, the 2018 Market Perceptions Study, in April 2018 with a nationally representative sample of 803 respondents age 18+, who are currently not retired. An additional 234 respondents with investable assets of $200k+ completed the survey (515 total respondents with investable assets $200k+).
Products are issued by Allianz Life Insurance Company of North America. Variable annuities are distributed by its affiliate Allianz Life Financial Services, LLC, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. www.allianzlife.com