NASHVILLE, Tenn. - Even though there’s more data available to investors than ever before, investors keep making the same mistakes, according to Timothy Horsburgh, investment strategist for OppenheimerFunds, speaking at Raymond James Financial Services annual conference.
“There’s a lot of data available, but what’s missing is context,” Horsburgh told advisers attending the breakout session “Compelling Wealth Management Conversations.”
Being able to tell a story, he said, can help advisers with “one of the more difficult parts of their job – not just helping clients manage their assets, but managing their emotions.”
To do that, he suggested advisers use a three part approach when talking with clients about investing: 1) stress fundamental principles of investing, including consistency, courage and balance; 2) put investing issues in historical context and 3) provide narratives for investment themes that clients can understand.
Tell your clients investment stories says Timothy Horsburgh, investment strategist for Oppenheimer Funds.
CONSISTENCY IS KEY
Clients need to understand that despite market volatility, consistency is the best course of action, Horsburgh said.
One way to do that, he suggested, is to show them a bar chart showing that $100,000 fully invested for the last 20 years yielded an annualized return of 6.44% to reach $348,347. By comparison, if an investor missed even the 10 best days of the market in that period, their return would be reduced by almost 50%, reducing their principal to $173,979.
To help clients buck up their courage through market downturns, Horsburgh proposed displaying a graph showing the difference between price return and total return for $100,000 invested in Barclays High Yield Bond Index between 1989 and 2015. While the price increase was minimal, the total return on the investment exceeded it by over 100%, achieving a return of $780,248.
Clients’ historical context is often skewed by what he called “recency bias,” or the tendency to place greater weight on recent events when making a decision.
Because investors are still unnerved by the Great Recession of 2008-2009, advisers need to counter that bias and other fears and myths with positive stories.
Despite fears that the U.S. will be overly burdened by aging baby boomers, for example, the two largest age groups in the county, according to the Census Bureau, are people aged 20 to 39 (87.2 million) and 40 to 59 (85.1 million), versus 67 million people over age 59.
Unfounded fears about American decline can be countered by pointing to upbeat facts, Horsburgh said, including research showing that the U.S. leads the world in natural gas production, nuclear production and refined oil output; is second in coal production and third in oil production and exporting goods and services.
Clients should also be aware that the human condition is improving. Horsburgh suggested stressing facts such as the growth of world GDP from $1.3 trillion in 1960 to $78 trillion in 2015 and the dramatic increase in average earnings, college graduation rates and life expectancy in the U.S. over the last 60 years.
BIG PICTURE THEMES
As for investment themes, Horsburgh recommended giving clients big picture, macroeconomic stories to help them make informed decisions for the long term.
Oppenheimer Funds, for example, is projecting modest global economic growth this year coupled with high volatility, led by expansion in the U.S. and Europe but balanced by a slowdown in China.
And clients should be aware that classic signs of recession are not evident, Horsburgh said. Metrics such as bank credit, inflation, valuation and household debt to income ratio are all favorable, according to Oppenheimer Funds research.
“Comparing the current economic cycle to recessions of the past, we find little evidence to suggest the cycle is coming to an end,” he declared.