Market Downturn - What To Communicate To Clients In Times of Market Turmoil
Trust Company of America
Description
ADVISOR INSIGHTS | JANUARY 2016
MARKET
DOWNTURN
WHAT TO COMMUNICATE
TO CLIENTS IN TIMES OF
MARKET TURMOIL
Markets are roiling and stocks are off to their worst start
to a New Year in history. With oil prices plunging and the
Chinese stock market causing a global sell-off, clients may
become increasingly agitated as they see their investment
performance declining.
Concerned investors can easily lose track of the importance
of maintaining a long-term outlook. We all know the
damage a hasty response can wreak on an investment plan.
The challenge for advisors is to keep anxious clients focused
on their long-term goals while guiding them through the
turbulent periods.
As an advisor, these challenging times can present unique
opportunities. Now more than ever, clients will listen to you
and heed your advice for diversification and prudent planning.
Such times can provide you with the opportunity to help
clients understand that market corrections, while unpleasant,
are a natural and inevitable part of the market cycle.
As you field inquiries from anxious and fearful clients, here are
a few basics you can share with them to help them keep calm
through the storm.
.
WHAT TO COMMUNICATE TO CLIENTS IN TIMES OF MARKET TURMOIL LONGER HOLDING PERIODS HAVE HISTORICALLY REWARDED INVESTORS In the short term, stock markets can swing dramatically. However, investors who have historically stayed the course with a long-term investment plan have been rewarded. On the flip side, investors who have historically traded excessively during volatile markets have underperformed the market. - - + +7 1-year holding periods 5-year holding periods - Though past performance is no guarantee of future results, the odds of achieving a positive return in the stock market have been much higher over a five- or 10-year period than for a single year. + Source: Ibbotson Associates. Calculations based on the total returns of the S&P 500 Index over rolling 1-, 5- and 10-year periods between 1926 and 2014. Chart is for illustrative purposes only and is not representative of the future performance of any particular portfolio or security. 10-year holding periods WHAT CLIENTS NEED TO KNOW: { Market corrections are a normal part of the market cycle. { Consider the powerful influence of time when investing.
As holding periods increase, the probability of positive returns has historically increased. { Careful diversification of their portfolio is designed to cushion the blow of market retreats. { On average, in the last 80 years, the stock market has experienced a down year one out of every four years, according to Ibbotson. { Keeping a long-term focus can help investors manage short-term volatility and benefit from the market’s historically upward growth. { Take the opportunity to reinforce with clients how their investments align to their overall investment strategy and suitability. Advisor Insights 2 . WHAT TO COMMUNICATE TO CLIENTS IN TIMES OF MARKET TURMOIL IT’S BETTER TO BE IN THE MARKET THAN ON THE SIDELINES Now is a good time to remind clients that it isn’t wise to play the “timing” game. Missing just a few days in the market can seriously hurt performance. Remind them, it’s time in the market – not timing – that’s truly important. While sitting on the sidelines, waiting for just the right time to invest, some of the market’s best single-day performance can slip by them. Here’s what would have happened to investment returns for investors who missed the best of the market’s trading days over the past 20 years. Average Annual Returns of the S&P 500 Index (Jan 1, 1995 – Dec 31, 2014) +9.85% Returns as measured by the S&P 500 Index after being out of the market for the specified number of the best-performing days: +6.10% +3.62% +1.49% ays 40 D sted Inve Fully ays 10 D ays 20 D ays 30 D ays 60 D -0.45% Source: Index calculated with data supplied by Bloomberg. Past performance is no guarantee of future results. WHAT CLIENTS NEED TO KNOW: { Historically, most of the biggest stock market gains occurred during very brief periods that are impossible to predict.
That’s why it’s important to stay invested. { By bailing out of the market during a market correction, you may be turning paper losses into real losses. { History has proven time and time again that investors who are willing to wait out short-term volatility have been rewarded over the long term. -3.84% { Being out of the market, as measured by the S&P 500 Index, for just the 10 best days over the past 20 years would have reduced returns by more than 35%. Being out of the market for the best 60 days would have cost an investor nearly 140% of the potential returns over the period. Advisor Insights 3 . WHAT TO COMMUNICATE TO CLIENTS IN TIMES OF MARKET TURMOIL MARKET CORRECTIONS MAY CREATE OPPORTUNITIES TO BUY Investors are often faced with three options during market corrections: sell, hold or hold and buy more. With a hold and buy more strategy, an investor can add to a position in down periods and likely benefit in a future recovery. How these strategies have compared in historical down markets as defined by the S&P 500 Historical Market Crisis Sold at the bottom Did Nothing (Hold) Recovery from market bottom one year later Recovered in: Added investment of equal amount Recovered in: Great Depression (19291936) Lost 78% 52 months 2 months +163% World War II (1939-1946) Lost 29% 9 months 5 months +61% Oil Crisis (1972-1976) Lost 43% 21 months 5 months +38% 1987 Crash (Sept-Nov) Lost 29% 13 months 1 month +23% Gulf War Crisis (19901991) Lost 13% 3 months 1 month +34% Great Recession (2008-2009) Lost 46% 24 months 5 months +54% Source: Ibbotson Associates. Data assumes an initial investment was made at the beginning of the year of when the event took place. Hold and buy more strategy assumes that a portfolio added the same amount as originally invested at the market bottom. Past performance is no guarantee of future results.
This table is for illustrative purposes only and is not representative of the future performance of any particular portfolio, security or strategy. Results shown reflect the reinvestment of dividends. WHAT CLIENTS NEED TO KNOW: { { Even in extreme market conditions, as we have occasionally seen historically, selling at the bottom of a downturn is never a good idea. Waiting out the market downturn has historically rewarded investors.
Even selectively adding to an investor’s positions, may make sense and may help the portfolio recover faster. If you sell at the bottom, you risk missing any subsequent rebound, which has historically been fast and robust. { While it can be difficult at the time, periods when pessimism has prevailed have historically presented attractive long-term buying opportunities. { We can use the market’s ups and downs to trim outside positions or to add to holdings where the investor can use additional exposure as long as such investments align with client’s overall suitability. Advisor Insights 4 . WHAT TO COMMUNICATE TO CLIENTS IN TIMES OF MARKET TURMOIL IT’S NOT TIME TO PANIC While markets are down and investors may be losing money, this will be a temporary correction and the overall U.S. economy continues to show signs of strength. WHAT CLIENTS NEED TO KNOW: { Remember, the stock market is not the { Oil is only about 6% of the stock market economy. While the global economy has and overall U.S. economy.
The energy slowed down, it isn’t even contracting yet. sector may be hurting, but as long as consumers keep spending, America can keep growing. { While the average investor is down about 9% so far this year, it helps to keep it in context. Stocks have soared about 200% { A recession is unlikely. The U.S.
and China since March 2009. The recent pullback is a are the big players in the world economy. minor correction. Right now, both are growing, and the U.S.
just had two stellar years of job growth. { The recent sell-off has helped to bring stock prices to more reasonable levels. { Growth in China is slowing and causing Many investors gauge how expensive the reverberations in global markets. the market is by looking at the However, the downturn in stocks and price-to-earnings (P/E) ratio.
The S&P 500 China’s economy has to get a lot worse to is now trading at 15.6 times forward trigger a global or U.S. recession. earnings, according to S&P Capital IQ. That’s cheaper than the 15-year average. { This isn’t like the 2008 downturn.
Banks and individuals have a lot less debt and a lot more cash on hand than they did heading into 2008. Companies, too, are sitting on over $1 trillion of cash. THE IMPORTANCE OF COMMUNICATION Talking to clients when markets are falling can be a daunting prospect. But regular communication helps neutralize anxieties caused by short-term market movements.
And just because clients aren’t complaining about market performance doesn’t mean they aren’t unhappy. There’s no better way to unearth the angst that may be quietly taking root in your clients’ minds than to extend an invitation to vocalize their concerns. By welcoming their feedback, you can address their concerns upfront before they snowball into an insurmountable wave of dissatisfaction. Advisor Insights 5 .
WHAT TO COMMUNICATE TO CLIENTS IN TIMES OF MARKET TURMOIL Communicating during turbulent times can help you retain clients and could lead to additional referrals. It will also give you an advantage over robo-advisors because clients will value the personal attention and communication from a traditional financial advisor. The best ways to communicate include: [ Call clients. Calling clients provides a personal touch where you can reassure clients with the tone of your voice in addition to your words.
Talking directly to client also enables them to ask questions and get immediate answers. Start by reaching out to your most valued clients, followed by clients who are likely to be concerned about swings in the market. You can then reach out to your remaining clients. [ Send an email.
Email is the most time and cost-efficient form of communicating with multiple clients at once. Consider adding a market letter or another marketing piece providing a reassuring overview of the economy and details on what the current market correction means for their portfolio. [ Provide a timely seminar. Consider presenting a seminar on the current market volatility and strategies that you’re employing to help protect clients.
You might consider enlisting the help of one of your money managers. HOW TRUST COMPANY OF AMERICA (TCA) CAN HELP The largest independent custodian in America, TCA has been protecting the assets of investors since 1972. Our philosophy has always been, and remains, fiscally conservative. We believe that financial strength is the foundation of providing value to our RIA partners in all market conditions.
The TCA platform enables you to: [ Provide your best thinking to all your clients: Our technology allows you to design custom portfolio models based on your proprietary investment strategies. [ Manage your book of business at the model level and not get slowed down by each additional account. [ Execute trades in real time using the most-to-date information available. This allows you to adjust trades based on current market conditions and make more informed decisions. [ Rebalance portfolios in just a few mouse clicks. [ Prevent your accounts from being eaten by fees with asset-based pricing (no ticket charges). Contact us today at 1-800-955-7808 or visit www.trustamerica.com. About Trust Company of America Trust Company of America (TCA) is the only independent RIA custodian offering fully integrated real-time technology, consultative services and back office support exclusively to RIAs. Since 1972, TCA has been a dedicated champion of RIAs, committed to personally helping them optimize their portfolios, streamline their business processes and achieve their full potential — all without competing for their clients.
Visit trustamerica.com to learn more. © Trust Company of America (TCA). All Rights Reserved. Member FDIC Insured – No Bank Guarantee – May Lose Value. Advisor Insights 6 .
WHAT TO COMMUNICATE TO CLIENTS IN TIMES OF MARKET TURMOIL LONGER HOLDING PERIODS HAVE HISTORICALLY REWARDED INVESTORS In the short term, stock markets can swing dramatically. However, investors who have historically stayed the course with a long-term investment plan have been rewarded. On the flip side, investors who have historically traded excessively during volatile markets have underperformed the market. - - + +7 1-year holding periods 5-year holding periods - Though past performance is no guarantee of future results, the odds of achieving a positive return in the stock market have been much higher over a five- or 10-year period than for a single year. + Source: Ibbotson Associates. Calculations based on the total returns of the S&P 500 Index over rolling 1-, 5- and 10-year periods between 1926 and 2014. Chart is for illustrative purposes only and is not representative of the future performance of any particular portfolio or security. 10-year holding periods WHAT CLIENTS NEED TO KNOW: { Market corrections are a normal part of the market cycle. { Consider the powerful influence of time when investing.
As holding periods increase, the probability of positive returns has historically increased. { Careful diversification of their portfolio is designed to cushion the blow of market retreats. { On average, in the last 80 years, the stock market has experienced a down year one out of every four years, according to Ibbotson. { Keeping a long-term focus can help investors manage short-term volatility and benefit from the market’s historically upward growth. { Take the opportunity to reinforce with clients how their investments align to their overall investment strategy and suitability. Advisor Insights 2 . WHAT TO COMMUNICATE TO CLIENTS IN TIMES OF MARKET TURMOIL IT’S BETTER TO BE IN THE MARKET THAN ON THE SIDELINES Now is a good time to remind clients that it isn’t wise to play the “timing” game. Missing just a few days in the market can seriously hurt performance. Remind them, it’s time in the market – not timing – that’s truly important. While sitting on the sidelines, waiting for just the right time to invest, some of the market’s best single-day performance can slip by them. Here’s what would have happened to investment returns for investors who missed the best of the market’s trading days over the past 20 years. Average Annual Returns of the S&P 500 Index (Jan 1, 1995 – Dec 31, 2014) +9.85% Returns as measured by the S&P 500 Index after being out of the market for the specified number of the best-performing days: +6.10% +3.62% +1.49% ays 40 D sted Inve Fully ays 10 D ays 20 D ays 30 D ays 60 D -0.45% Source: Index calculated with data supplied by Bloomberg. Past performance is no guarantee of future results. WHAT CLIENTS NEED TO KNOW: { Historically, most of the biggest stock market gains occurred during very brief periods that are impossible to predict.
That’s why it’s important to stay invested. { By bailing out of the market during a market correction, you may be turning paper losses into real losses. { History has proven time and time again that investors who are willing to wait out short-term volatility have been rewarded over the long term. -3.84% { Being out of the market, as measured by the S&P 500 Index, for just the 10 best days over the past 20 years would have reduced returns by more than 35%. Being out of the market for the best 60 days would have cost an investor nearly 140% of the potential returns over the period. Advisor Insights 3 . WHAT TO COMMUNICATE TO CLIENTS IN TIMES OF MARKET TURMOIL MARKET CORRECTIONS MAY CREATE OPPORTUNITIES TO BUY Investors are often faced with three options during market corrections: sell, hold or hold and buy more. With a hold and buy more strategy, an investor can add to a position in down periods and likely benefit in a future recovery. How these strategies have compared in historical down markets as defined by the S&P 500 Historical Market Crisis Sold at the bottom Did Nothing (Hold) Recovery from market bottom one year later Recovered in: Added investment of equal amount Recovered in: Great Depression (19291936) Lost 78% 52 months 2 months +163% World War II (1939-1946) Lost 29% 9 months 5 months +61% Oil Crisis (1972-1976) Lost 43% 21 months 5 months +38% 1987 Crash (Sept-Nov) Lost 29% 13 months 1 month +23% Gulf War Crisis (19901991) Lost 13% 3 months 1 month +34% Great Recession (2008-2009) Lost 46% 24 months 5 months +54% Source: Ibbotson Associates. Data assumes an initial investment was made at the beginning of the year of when the event took place. Hold and buy more strategy assumes that a portfolio added the same amount as originally invested at the market bottom. Past performance is no guarantee of future results.
This table is for illustrative purposes only and is not representative of the future performance of any particular portfolio, security or strategy. Results shown reflect the reinvestment of dividends. WHAT CLIENTS NEED TO KNOW: { { Even in extreme market conditions, as we have occasionally seen historically, selling at the bottom of a downturn is never a good idea. Waiting out the market downturn has historically rewarded investors.
Even selectively adding to an investor’s positions, may make sense and may help the portfolio recover faster. If you sell at the bottom, you risk missing any subsequent rebound, which has historically been fast and robust. { While it can be difficult at the time, periods when pessimism has prevailed have historically presented attractive long-term buying opportunities. { We can use the market’s ups and downs to trim outside positions or to add to holdings where the investor can use additional exposure as long as such investments align with client’s overall suitability. Advisor Insights 4 . WHAT TO COMMUNICATE TO CLIENTS IN TIMES OF MARKET TURMOIL IT’S NOT TIME TO PANIC While markets are down and investors may be losing money, this will be a temporary correction and the overall U.S. economy continues to show signs of strength. WHAT CLIENTS NEED TO KNOW: { Remember, the stock market is not the { Oil is only about 6% of the stock market economy. While the global economy has and overall U.S. economy.
The energy slowed down, it isn’t even contracting yet. sector may be hurting, but as long as consumers keep spending, America can keep growing. { While the average investor is down about 9% so far this year, it helps to keep it in context. Stocks have soared about 200% { A recession is unlikely. The U.S.
and China since March 2009. The recent pullback is a are the big players in the world economy. minor correction. Right now, both are growing, and the U.S.
just had two stellar years of job growth. { The recent sell-off has helped to bring stock prices to more reasonable levels. { Growth in China is slowing and causing Many investors gauge how expensive the reverberations in global markets. the market is by looking at the However, the downturn in stocks and price-to-earnings (P/E) ratio.
The S&P 500 China’s economy has to get a lot worse to is now trading at 15.6 times forward trigger a global or U.S. recession. earnings, according to S&P Capital IQ. That’s cheaper than the 15-year average. { This isn’t like the 2008 downturn.
Banks and individuals have a lot less debt and a lot more cash on hand than they did heading into 2008. Companies, too, are sitting on over $1 trillion of cash. THE IMPORTANCE OF COMMUNICATION Talking to clients when markets are falling can be a daunting prospect. But regular communication helps neutralize anxieties caused by short-term market movements.
And just because clients aren’t complaining about market performance doesn’t mean they aren’t unhappy. There’s no better way to unearth the angst that may be quietly taking root in your clients’ minds than to extend an invitation to vocalize their concerns. By welcoming their feedback, you can address their concerns upfront before they snowball into an insurmountable wave of dissatisfaction. Advisor Insights 5 .
WHAT TO COMMUNICATE TO CLIENTS IN TIMES OF MARKET TURMOIL Communicating during turbulent times can help you retain clients and could lead to additional referrals. It will also give you an advantage over robo-advisors because clients will value the personal attention and communication from a traditional financial advisor. The best ways to communicate include: [ Call clients. Calling clients provides a personal touch where you can reassure clients with the tone of your voice in addition to your words.
Talking directly to client also enables them to ask questions and get immediate answers. Start by reaching out to your most valued clients, followed by clients who are likely to be concerned about swings in the market. You can then reach out to your remaining clients. [ Send an email.
Email is the most time and cost-efficient form of communicating with multiple clients at once. Consider adding a market letter or another marketing piece providing a reassuring overview of the economy and details on what the current market correction means for their portfolio. [ Provide a timely seminar. Consider presenting a seminar on the current market volatility and strategies that you’re employing to help protect clients.
You might consider enlisting the help of one of your money managers. HOW TRUST COMPANY OF AMERICA (TCA) CAN HELP The largest independent custodian in America, TCA has been protecting the assets of investors since 1972. Our philosophy has always been, and remains, fiscally conservative. We believe that financial strength is the foundation of providing value to our RIA partners in all market conditions.
The TCA platform enables you to: [ Provide your best thinking to all your clients: Our technology allows you to design custom portfolio models based on your proprietary investment strategies. [ Manage your book of business at the model level and not get slowed down by each additional account. [ Execute trades in real time using the most-to-date information available. This allows you to adjust trades based on current market conditions and make more informed decisions. [ Rebalance portfolios in just a few mouse clicks. [ Prevent your accounts from being eaten by fees with asset-based pricing (no ticket charges). Contact us today at 1-800-955-7808 or visit www.trustamerica.com. About Trust Company of America Trust Company of America (TCA) is the only independent RIA custodian offering fully integrated real-time technology, consultative services and back office support exclusively to RIAs. Since 1972, TCA has been a dedicated champion of RIAs, committed to personally helping them optimize their portfolios, streamline their business processes and achieve their full potential — all without competing for their clients.
Visit trustamerica.com to learn more. © Trust Company of America (TCA). All Rights Reserved. Member FDIC Insured – No Bank Guarantee – May Lose Value. Advisor Insights 6 .
