Ten reminders for clients during market downturns

When market conditions are tough, be sensitive to your clients’ concerns and true to their original investment objectives.

1. Stick with your plan

Short-term market fluctuations should not be a concern when you have a sound financial plan — one that includes a well diversified portfolio to meet investment objectives in an appropriate time horizon.

2. Look beyond today

No-one can predict what the market will do and when, so think of it as a shop — prices increase when demand is high, and drop when demand is low. The long-term trend, however, is up.

3. Don’t get distracted

The media tend to focus on market declines because these events get more attention than steady climbs.

4. Avoid chasing trends

If you want to build wealth through the stockmarket, any seasoned investor will tell you that you need to buy stocks when they look cheap and sell them when they reach a premium. One big mistake investors can make is to chase the latest trend — jumping between funds, asset classes, regions, or sectors because of stellar performance in past years and because they appear to be the next big thing.

It’s virtually unheard of for a fund, asset class, region, or sector to perform consistently all of the time, no matter how ‘favoured’ it is by the market. The best strategy an investor can adopt is to develop a longer plan … and stick to it.

5. Invest regularly

The benefit of dollar cost averaging, which enables you to spread out the average cost per unit of buying managed funds, is that it reduces the risk of buying at the wrong time.

6. Short-term success

Short-term outperformance in some sectors may cause investors to be overly confident about their investment abilities. This confidence then leads investors, during less buoyant phases, to have a tendency to seek a quick fix, which may crystallise short-term downturns as permanent capital losses.

The impetus for frequent switching is, more often than not, an invalid one. An investment that has a string of bad returns (after a string of healthy returns) hasn’t necessarily turned into a bad investment overnight.

7. The best managers

Your portfolio is diversified among a number of investments, managed by highly qualified portfolio managers. They spend their working life trying their best to achieve top results. Their careers and their business depend on it.

8. Investment objectives

The investments in your portfolio were purchased because they were compatible with your long-term goals. So, unless your investment objectives have changed, there is no reason to stray from the funds you’re invested in because of a market correction.

9. Diversification

A properly diversified portfolio will limit any loss suffered by investors in a market correction. Advisers and their clients should review a portfolio’s weighting of equities, bonds, property, and cash investments to ensure that it suits the clients’ risk tolerance.

10. Repeat often

The only way to help reassure clients that they are on the right track is to pass on consistent information, on a regular basis. Review, but don’t necessarily revise, a client’s investment strategy.

If clients seriously lament the strong performance of an area in which they haven’t invested or are itching to transfer out of a fund in order to ride out volatility, it’s wise to reconfirm investment objectives. Overhauling a portfolio to satisfy a client’s short-term performance envy won’t help your client or your business.

Information is providedcourtesy ofInvesco .