Stocks will edge higher, sometimes for prolonged periods of time, but this should never give rise to complacency. Because there’s always a ‘bear market’ waiting just around the corner.
Don’t get caught out when the markets start to fall. Prepare yourself in advance, both for your own peace of mind – and so you’re ready to reassure clients that there’s no reason to panic.
Here are some things you can do to make sure you’re in command when market corrections take place.
#1. Prepare your bear market presentation in advance
Don’t leave this important future conversation to chance. When markets are on the downturn, your clients will immediately look to you for leadership. Your presentation must demonstrate your continued confidence in the markets.
Play out in your mind how you envision this conversation going and you won’t get lost for words when the time comes. Write these words down and practice them until they come naturally. Then you can use them without stumbling or hesitating so that clients trust you enough to follow your advice.
#2. Prepare to tell stories and analogies to explain market volatility
Have relevant analogies and stories at the ready to draw on as and when required so you can allay your clients’ fears.
Here are a couple of examples:
When there’s bad news, the stock market gets depressed – which is kind of like when a beach ball gets pushed underwater. But think positively – when we let go of the ball, what happens next?
Discuss the situation of a couple driving inter-state to see friends. If they’re delayed by construction work, they don’t decide to turn back – they see the delay as a setback not a game-changer. They need to stay the course, so they can get to see their friends. And that’s exactly what clients need to do when it comes to their investments – see volatility as a glitch that won’t prevent them from achieving their long-term objectives.
#3. Understand individual clients’ attitude to risk
When you first arrange your clients’ portfolios, you’ll realize that most clients tend to be somewhat risk averse. Rather than seeking to accumulate great wealth, they’re simply looking for a way to fund retirement or get the kids through college without borrowing money.
Certain clients however may be more risk averse than others, and more inclined to panic when there’s a loss of momentum in the markets. See if you can identify these clients in advance so you can spend more time preparing them for bad market conditions.
How did they identify themselves on initial risk assessments? How risk-averse are their portfolios?
Use your intuition too, to pinpoint clients you feel may need extra attention. Create a plan to reassure those you identify as particular risk-averse before market corrections ever take place.
#4. Review portfolios
While times are calm, it could be a good time to take a look at clients’ portfolios and how they could be affected if severe volatility strikes.
What would happen if there was a 50% drop in the market? Create ‘what if?’ scenarios as a stress test. There may well be no need to take any action – but some areas may need slight adjustments.
#5. Be ready to see a bear market as a referral opportunity
If you plan ahead and remain calm and strong for your clients during tumultuous times, they will thank you for it later. And they may have friends or colleagues who are also anxious to have someone on hand to give them steady guidance regarding their investments. Remember to ask if your clients know anyone who needs anyone just like you.
Nobody knows where the markets are going, but that doesn’t mean you should sit back and take no action. Your aim is to remain calm and considered in the event of a market crash. To make this happen do your preparation. Do a ‘bear market drill’ in a bull market, while the pressure is off. Don’t, like many other advisors, wait until the wolf is at the door.
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