'Am I going to lose all my money?' How to answer clients' worried calls

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My guess is many of your clients are looking at the recent market news on their smartphones or tablets, and speed-dialing your number. “Dow Plunges 1,000 Points” screams one online news service; “Stocks Take Another Hit!” shouts another; “Stocks Suffer Worst Week Since 2016,” a third announces somberly. Your clients are calling you, and in one way or another, many of them are asking you the same question: “Am I going to lose all my money?”

What I hope financial advisors realize is that the current selloff, as drastic as it feels, is a normal part of the business cycle. As many of us have been telling our clients for months, the equity markets, especially in the U.S., have gotten well ahead of the underlying valuations of the companies whose stocks are listed. No bull market lives forever; at some point, a pullback of some sort is needed to allow the market to recalibrate.

By now, we are familiar with the outlines of the story: the recent stronger-than-expected jobs and wages report had inflationary overtones, which rattled the markets; a flight to quality ensued, and it became a stampede; at some point, the algorithms took over, and automated trading began amplifying the general fears. The result of all this is a (probably) overdue downward adjustment in the market that currently stands in the 10% range.

On this day of a 1,000-plus-point drop in the Dow, I have been a net purchaser of stocks, both in my clients’ portfolios and in my personal account.

Our job is to coach our clients (and ourselves, when necessary) out of the tendency to make emotional decisions driven by short-term considerations. I hope that you do not find the alarmists’ arguments convincing, because you remember that your job is to help your clients form and implement long-term strategies, not short-term, knee-jerk reactions.

Remember that 18 states started 2018 with higher minimum wages, which likely nudged the hourly earnings figure upward. Also, several corporations have announced bonuses for their workers, based on the expected, huge reduction in corporate tax rates; these amounts — some likely one-time events — are also finding their way into the government statistics. These facts must be incorporated into our discussions with clients. It is our job to deal in facts, not in emotions.

I am remembering the words of Warren Buffett from his recent letter to Berkshire Hathaway shareholders: “During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted.” I believe the Sage of Omaha is spot-on. And on this day of a 1,000-plus-point drop in the Dow, I have been a net purchaser of stocks, both in my clients’ portfolios and in my personal account. For the past several days, I have been communicating proactively — online and personally — to remind my clients that the current market conditions, while sudden in onset, are not unexpected. I hope that you have been doing something similar, and if you haven’t, I hope that you will start immediately.

I also like to remember that typically, the Dow rises like an escalator, but it falls like the express elevator. Historically, you get off the elevator at a higher floor than where you stepped onto the escalator, and at some point, the escalator resumes operation. But when the elevator starts dropping and you feel that sinking sensation in the pit of your stomach, it’s hard to remember what the escalator felt like.

Is your phone ringing? Are you getting text messages and emails from your clients? You need to communicate with them, like the professional that you are. And you need to help them remember their long-term goals and the strategies you’ve assisted them to put in place: strategies that take into consideration both the elevator and the escalator. If you can do that, you’ll be giving them what they need more than anything else — perspective.

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