The US stock market has been increasingly volatile lately, and been a while since investors had to handle this level of volatility in the market. With plenty of portfolios in the red, it can be easy to worry about how your clients are faring and how best to steer them in such an uncertain market. While there's no one easy answer here, there a few things you can keep in mind as your firm and clients enter the choppy waters.
Selling may be an option.
For a person who is losing sleep over the market, selling some shares may be the right move. At the very least, it can help cap losses and keep uneasy investors from dumping their entire portfolio in a panic at one time.
Go bargain hunting
Market volatility over a period of time more or less creates a "fire sale" on high-quality stocks. Rev your FIX engine and take a closer look at how stronger stocks are faring to uncover discounts. Back in early 2016, concerns over China's economy led to an unsteady market in which Amazon stocks fell from $696 per share to $474. Investors who took advantage of this opportunity watched their stocks quadruple to over $2,000 in just a short period of time. Research, watch and see what you can discover for your clients in terms of stock deals when the market is sliding.
Daily market swings happen
Daily swings in the market can seem too random and chaotic to accurately predict for some investors. However, your clients don't need to subject themselves to the everyday market headlines that will only worry them, and you may need to remind them of that. Long-term investors with horizons of five years or more don't need to get wrapped up in the volatility that is happening now but is unlikely to last more than two years or so in the absolute worst-case scenario. Your long-term investors with portfolios that are well balanced can easily get swept away by the short-term noise that is blaring from the market and every news channel, and that's not good news for them or their financial futures.
Diversification still matters
If you have clients who are not diversified enough, now may be the right time to talk about it. Many investors don't realize how much diversification can help reduce risk exposure, but it may be easier to explain in times like these, when the market for stocks is unstable but other financial products aren't as affected. Side by side comparisons can work wonders here.
Help clients keep things in perspective
The market is always going through changes of one kind or another. gone from paper to
FIX engine, from in-house to online, and from opaque to more transparent. Pullbacks, corrections and even bear markets are a typical part of the market cycle. Since 1945, the S&P 600 has dropped between 5 and 10 percent over 75 different times, but the average recovery time to previous highs was only around four weeks.
