Most investors know that their financial decisions should be based on their goals, but that doesn't stop them from being rash when the market is at its most unpredictable. As a financial planner, that will only make your job more difficult.
Here are three questions financial planners need to answer in order to guide their clients through this period of economic uncertainty.
"When Do I Need to Start Thinking More Conservatively With My Investments?"
With the stock market less predictable than ever, many investors are tempted to reduce their exposure and hold more of their savings in cash or bonds. While this isn't usually the best idea, it can be hard to convince a client of that.
"The fear-greed pendulum is always swinging and investors that get caught up in making their investment decisions based on how they are feeling will get poor results and have a lot more stress," Joshua Nelson, CEO and founder of Nelson Financial Services in Loveland, Colo. said.
When nervous clients come to Nelson, he first asks if their risk tolerance and timeframe have changed. If not, he walks them through their portfolio to remind them why they allocated it that way in the first place.
"99% of the time the client says they want to leave their investments and risk the way they are," Nelson said.
"How Will Trade Issues and New Tariffs Impact the Market?"
Knowledge is key when it comes to keeping clients from overreacting to politics, Marguerita Cheng, certified financial planner and CEO of Blue Ocean Global Wealth in Potomac, Maryland said. When Cheng's D.C. area clients ask about how a potential trade war will impact their portfolios, she is careful not to quantify it either way.
"They need to know to expect more volatility, but the last thing you want is for the client to get upset and react," Cheng said. "They should be aware if the market drops 800 points but not necessarily make a trade the day after."
Cheng also warns her clients that industries such as manufacturing are especially susceptible to legislative actions, but that they should continue to be consistent with their investments.
"Is There Going to Be Another Financial Crisis?"
We might be in the ninth year of a bull market, but many investors still remember the pain of 2007 like it was yesterday and are afraid history may be about to repeat itself.
"We are hearing that it feels a lot like 2006, and people are expecting a change," Portland, Oregon based certified financial planner Theodore Haley of Advanced Wealth Management said. "While we might agree, our job as advisors is to make sure that those feels don't lead to making changes based on emotion, and that we help our clients stick with the plan that we have worked with them to create."
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