Market volatility tends to frighten investors and they start having second thoughts about their investment plans. Such situations can also trigger them to take hasty decisions such as withdrawing their investments which can hamper their long-term objectives significantly. Being a financial advisor, you must explain to clients the 3 basic features of volatility so that they have no difficulty in sticking to the financial plan
1. Markets are prone to corrections
Factors such as company news, economic developments or merely trading imbalance can cause markets to collapse or rise in a short period of time. At times, volatility can also occur owing to human sentiments where huge amount of investors redeem their shares at any particular time. However, there is no definite consensus in terms of what leads to volatility. Advisors must make clients understand that volatility will exist and they must learn to deal with it instead of getting flustered.
2. Financial plans are made keeping volatility in mind
When advisors create a plan in line with the clients’ aims, they also keep in mind market volatility to ensure that the investment portfolio is not majorly affected in case of any ups or downs. Make your clients understand that as their objectives are the same, they should not modify their investments either when the markets are unstable. On the contrary, financial advisors might review client portfolios in such situations and make any modifications if required according to the risk appetite.
3. Never time the markets
Markets move in phases. Although this can give some amount of indication as to what may happen next, it is impossible to determine when to buy or sell, accurately. Therefore, financial experts have to persuade clients to see the bigger picture. Explain to them that choosing to remain invested for a longer period is better than timing the market and moreover, it offers consistent returns.