Coronavirus has caused a black swan event – an unanticipated event that shocks the markets and usually does so in a very profound and negative way. The impact on the global economy has been swift, staggering and growing, and the impact on the financial markets has been unnerving and highly volatile. In short, we have characterized the virus as unexpected, unprecedented, uncharted, unfinished and, at times, unbearable (especially with the fastest 30%-plus decline from record highs—just 22 days).
As the headlines on coronavirus continue to evolve every day, it’s important to continue reiterating the following with your clients:
First and foremost, take care of yourself. Our business is about people. There is nothing more important right now than remaining healthy and safe during this time. Remind your clients that you are here to look out for their portfolio, so they can focus on looking out for themselves and their loved ones.
Stay calm and do not panic. This is an emotional time, but it’s important to avoid making emotionally charged, panic decisions. Given the volatility in the equity markets, it is natural for clients and investors to engage in panic selling. However, we strongly caution investors against doing this, because if they miss the market’s best days, their portfolio will significantly underperform. While sell-offs are uncomfortable, it should be noted that the best days for the market historically coincide with market sell-offs, or immediately follow them.
Stick to your long-term plan. The majority of portfolio returns — over 90% — come from asset allocation decisions, while market timing and stock selection account for less than 10%. Remember that you created the right allocation for your existing clients during a calmer time, so encourage them not to abandon it now.
That being said, for clients who seem particularly concerned, now is the time to review their plan with them to reassure them. Make sure they are properly diversified and know what they own. Review with them their time horizon and level of risk tolerance. Remind them that if equities tend to provide the highest return longer term, they’re going to endure the most volatility in the short run.
If they have any short-term liquidity needs, ensure they have the essential cash on hand. Reassure clients that adjustments can be made if necessary, but help them keep perspective on the long-term plan you’ve created for and with them.
Remain optimistic in the long term. While we cannot predict when the equity market will return to a semblance of normalcy, we know that after every major market downturn, the best days for the market immediately follow. Remember that the S&P 500 has weathered storms before. The average annual return of the S&P 500 since 1928 has been 8.7%. Volatility is likely to continue in the near term, but given that the long-term underlying fundamentals of the market remain supportive, we remain optimistic.
I’m here for you. We never wish for significant negative events like pandemics and major market downturns, but it’s times like these that give you, their financial adviser, an opportunity to show your clients the value of your expertise and advice. Volatility is part of the fabric of the markets, and you are in a unique position as their trusted adviser to help them navigate this. Remind them that you are their partner, looking out for their best interests and financial well-being amid all this uncertainty.
Larry Adam is chief investment officer in the Private Client Group at