After 11 years of what some may call a bull market, many clients, especially youngerones, may have been caught off guard by the sudden, sharp fall early this year.
Although no one could have predicted the outbreak of COVID- 19 and its effectson the economy and financial markets — some of which are truly unprecedented —these recent market fluctuations share many similarities with those that have comebefore. Helping your clients understand stock market volatility and how to keepemotions in check can help them navigate turbulent times with more confidence.
Creating a sound retirement plan is also essential to minimizing the long-termimpact of a down market and will empower clients to reach their goals, no matterhow the market fluctuates.
Understanding market performance
Emotions often play an outsized role in financialdecision-making. Overreacting to the ups and downs ofthe stock market can create emotional roadblocks in theretirement planning process. No one likes to feel uneasy,so the gut reaction to a significant market drop may be tocompletely rearrange a portfolio or cash out. It’s importantto help your clients recognize their emotions, but not beruled by them. Explain that a market fluctuation is just that,a fluctuation, and while there can be dips, there are alsoupswings — often following broader economic trends.
Market dips are normal and do not always mean a
recession is looming. It’s important clients understand
that on average, a bear market is a loss of 20 percent
or more over a sustained amount of time — typically
two months or more. A bull market is a situation
in which stock prices rise by 20 percent, usually
after a drop of 20 percent and before a second
20 percent decline.
HELP CLIENTS UNDERSTAND