Coronavirus is circling the globe and markets are making headlines with some scary record-breaking multi-day drops. The U.S. stock market suffered its worst week since 2008. Financial advisers are getting phone calls from panicked clients who just watched someone on TV say markets are going to drop further. Some clients are asking their adviser if they should get out of the stock market and go to cash.
Amid this turmoil, how do financial advisers stay calm? Are they just pretending while inside they’re just as nervous as you are about their own money? After all, they have retirement savings, bills to pay and families to support.
If Warren Buffett made his money from ordinary income rather than capital gains, his tax rate would be a lot higher than his secretary’s. In fact a very small percentage of people in this country pay a big chunk of the taxes.
– Michael Bloomberg
Here are four common behaviors I’ve observed during tumultuous world events while working alongside fellow fee-only certified financial planners managing diversified portfolio strategies using index funds and exchange-traded funds. Advisers spend a lot of time educating their clients about what it means to be a successful investor — most importantly to expect sudden drops in the market.
I’ll say this up front: the advisers I’ve worked with never sold their own investments while markets were getting hammered. What other habits of theirs are effective?
1. They don’t constantly look at their account balances: For one thing, advisers are too busy answering client calls. Most advisers wait to check their own accounts after the markets have recovered, if at all. Advisers know first-hand how such behavior can destroy wealth.
Are you obsessed with the latest market carnage or even worse, making impulsive changes to your investment accounts? Try creating a longer and complicated account password. (We all need to do this to make our accounts more secure.) Then forget to remember it.
2. They take care of themselves: When the going gets tough, advisers get plenty of exercise and sleep, eat healthier, and spend time with family and friends. In this way, they’re better able to help their clients gain perspective and peace around the market’s turmoil.
3. They don’t try to catch a falling knife: Ever notice how after markets fall sharply, there’s always someone quoted in the financial news or on TV saying the market is now a “buy” and “fairly valued” or even “undervalued”? Ever wonder how they know this? They don’t.
Plus, these “experts” may be speaking to an entirely different target audience than you, which includes day traders, short sellers, momentum traders, and various other kinds of professional money managers who make big bets on the short-term direction of the markets. None of these categories describes you, but there’s no disclaimer running across the bottom of your TV screen telling you this.
Market shows signs of recovery after fresh 8-year lows: Aus shares close 5.6% lower
An aggressive sell-off on the Australian market this morning forced the market to fresh 8-year lows today as investors feared the impact of extensive business shutdowns. The market showed signs of recovery over the afternoon but still closed 5.6 per cent lower. The Healthcare sector helped to stem the losses, managing to rise 2.6 per cent, against the tide of negative sentiment. All of the other sectors retreated. Oil is 33 cents higher after dropping to an almost 17 year low this morning. The S&P/ASX200 index: At the closing bell the S&P/ASX 200 index closed 271 points lower to finish at 4,546. Futures market: Dow futures are suggesting a fall of 697 points. S&P 500 futures are eyeing a dip of 109 points. The Nasdaq futures are eyeing a loss of 288 points. And the ASX200 futures are eyeing a fall of 248 points or 5.2 per cent tomorrow morning. Broker moves: Credit Suisse has more than halved its 12-month price target for Air New Zealand (ASX:AIZ) from NZ$2.00 to NZ$0.95. This comes as Air New Zealand enters into a NZ$900 million debt funding agreement with the NZ government. This is intended to provide liquidity to navigate the period of border restrictions. As a condition of the agreement, Air New Zealand will be cancelling its FY20 interim dividend and any other future dividends while the debt facility is in place. Shares in Air New Zealand (ASX:AIZ) closed 16 per cent lower at 84 cents. Company news : Consolidated Tin Mines (ASX:CSD) will not be proceeding with the acquisition of Auctus Chillagoe Holdings and the Chillagoe Project. The acquisition was subject to the company obtaining shareholder approval. The company has had issues dispatching a notice of meeting to shareholders to get that approval, as the ASX refused to approve the notice until the 2019 audited accounts of Auctus were included in the Notice. Those accounts have not been finalised or provided to Consolidated Tine Mines which now says that shareholder approval is incapable of being obtained w…
Advisers are aware that market corrections can end quickly or drag on for weeks or months. In the worst bear markets, it feels like stocks will keep falling forever. Then, when you least expect it the market will begin to rise.
So instead of trying to guess entry points, advisers do something boring but tried and true. They proceed with the scheduled annual rebalancing of their own and their clients’ accounts, no matter what’s going on in the markets. This assures they’re increasing their holdings in asset classes that have fallen (losers) and reducing their investments in asset classes that have done well (winners). This is one of the surest ways to buy low and sell high without trying to time the market.
4. They know it isn’t different this time:. The scariest world events are always unique — that’s why they’re so scary. We don’t know what to expect at such times because we haven’t experienced anything exactly like it in the past.
This time the scary world event is novel coronavirus COVID-19. I’m not downplaying it at all because it’s a legitimate fear. Last time the financial markets were rocked so hard, a dozen years ago, it was due to the housing bust. Some “experts” predicted then that the entire banking industry was about to fail, sending the United States into chaos. That was a frightening time too, but the reality in these situations has been that the world survives and markets eventually recover. With that in mind, financial advisers in this current market downturn aren’t about to go to cash or lose sleep, and you shouldn’t either.
Elaine Scoggins, CFP®, is a freelance writer in Savannah, Ga.
This Post was originally published on www.marketwatch.com