No financial professional wants to sit down with a client to discuss a potential market downturn. But, when it comes to stocks, that’s the just part of it. Bull markets don’t tend to last indefinitely.
While your clients likely understand that the market has its ups and downs—especially if they made it through the crash of 2008—they might not be prepared to face the realities of a shift to a bear market again.
That’s where you come in.
To help serve your clients’ best interests, you want to do everything you can to prepare them for potential market turbulence. So, how do you do that—without causing panic?
Understand the realities
Good communication is always crucial when it comes to talking with your clients. It’s essential to speak with them about the potential of a market downturn, and not just once it’s arrived. By then, it might be too late.
Educate them on the realities of the market and its cyclical nature. While bear markets can be painful, they typically last for a little more than a year. Bull markets have historically tended to last longer.
Know your plan
When you communicate the realities of the market to your client, be sure to highlight what could happen if the market were to take a turn for a sustained period.
You already know your clients’ risk tolerance, goals and time frame. Use that to discuss scenario-planning. Show clients how their portfolio can be positioned to hedge against risk and preserve as much of their investment as possible over the long term.
Avoid timing the market
It’s rarely a good idea for clients to shift into panic mode and try to time the market by making sudden moves.
It’s difficult to do this with any predictability or consistency. And bad decision-making can lead to poor portfolio performance, exactly what you’re trying to avoid.
Remind your clients to focus on their investments beyond the short term. While experiencing a bear market might feel like a period of uncertainty, your long-term plans keep their best interests at heart.
Build an emergency fund
Having an emergency fund set aside that has cash or liquid assets that can be easily accessed is always part of a sound investment plan.
This matters even more during a market downturn. In the 2008 recession, long-term unemployment (those unemployed more than 27 weeks) spiked.
With uncertainty around the corner, having a minimum of six months to a year of savings to cover expenses can help clients ride out the storm during a stressful time.
Lend an ear
It’s completely understandable that clients could get angry, emotional and even impulsive when it comes to their investments during down times.
But this is also the moment when you can prove yourself as a trusted financial professional who has their best interests at heart for the long term. Walk your clients through the ins and outs of the market, the structure of their portfolio and how you can help guide them through any tough times ahead.
No market trend lasts forever, so it’s essential to prepare your clients for a potential bear market lurking around the corner. Having the conversation now can help them build trust in you and feel confident that their investments are in good hands, even during rocky times.
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