The coronavirus crisis has wreaked havoc on financial markets, triggering massive losses and extreme volatility. It’s the type of generational event that reveals the value of long-term financial planning. Financial Advisors built their clients’ diversified portfolios for moments like this; the key will be convincing clients to stick to the plan.
Selling at the bottom is a nonstarter. That’s investing 101. But you can’t simply do nothing. Over the past two and a half months, we’ve seen the world change rapidly. However, it’s time for cooler heads to prevail.
That’s not an easy headspace to get into after watching the markets plummet 33 percent over five weeks during the first quarter of 2020. During the 2007 through 2009 financial crisis, It took 16 months for the markets to tumble 50 percent.
Patrick Nolan, director of BlackRock’s Portfolio Solutions Group, sees now as the time for advisors to rebalance asset allocations. “Rebalancing always offers value in terms of keeping clients connected to their long-term plans and horizon goals,” he said during the InvestmentNews Navigating 2020 webinar. “Rebalancing also gives an opportunity for tax-loss harvesting which is a critical value-add that advisers can offer.”
Nonetheless, don’t expect some rapid recovery in the next couple months. Nolan believes that the economic recovery will likely be slower than the oft-mentioned V or U recovery estimates.
The Fed and the federal government has hopefully slowed the crash. But we still don’t know when coronavirus will be contained and how the world following it will look.
Still, there is a timeline where things will return to ‘normal’ or at least something that resembles it. Financial advisors need to be reminding their clients of their long-term goals.
It’s important to remember, however, that your clients are all different. Some are retirees, some are on the verge of retirement, some are small business owners, some have jobs, some lost them. It’s important to craft narratives that reflect each of your clients goals and are cognizant of how the current economic crisis is affecting them individually.
Volatility has investors on edge and what’s important is to keep in touch and keep them calm.
