This week, Joe Elsasser, CFP®, discusses market volatility and how the right conversations about market risk can help your clients see the full picture and avoid making rash decisions in his Hidden Value column for ThinkAdvisor.
Help Clients Overcome Fear of the Unknown
Increasing fear surrounding COVID-19, the 2020 election and a Saudi-Russian oil price war has caused a volatile week in the markets, and many people are panicking. This is why risk discussions with your clients prior to a market dip are so important. Simply having a risk conversation with your clients isn't enough; the content of that discussion is equally important.
Are your conversations focused on range of reality for normal markets or market stress? If you aren't talking about market stress, it's time to change those conversations.
Two Ways to Get Started
- Historical Stress Test: Compare the client’s current portfolio against a previous market downturn.
- Use a Model that Predicts Risk: Use both a heavy-tailed model and an expected tail-loss methodology to prepare clients for risks ahead so they don’t become their own worst enemy.
"Your clients are mostly concerned that the next dip could be the one that forces them to un-retire or sacrifice a retirement goal. It’s the fear of the unknown that causes the worst-case outcome to materialize. If they know how bad it could get, and have a plan to survive, they are less likely to make rash decisions," said Elsasser.
Read the ThinkAdvisor article in its entirety.
Using SmartRisk to Analyze Market Impact on Investment Portfolios
Market opportunity and risk can be hard for clients to understand, especially in volatile times. They want to know how bad it will get. They want to sell. As an advisor with SmartRiskTM, you can analyze portfolio risk and easily communicate downside expectations to help your clients avoid costly mistakes. Your SmartRisk report provides:
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Heavy-tail risk analytics
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Diversification index
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Portfolio comparison
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Asset interaction and concentration alerts
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Household views of accounts
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Actionable reports
SmartRisk can be beneficial in your client's financial planning because you can enter multiple accounts and show them the household exposure to a down market. Since you can show multiple accounts, you can easily show which accounts are more risky than others. This provides a natural transition back to the financial plan because the amount of risk in the account is often based on the time until you'll need to use it. This ties into a Roth example. Clients may want their Roth accounts to be more risky than accounts that they'll be using earlier in retirement in order to capitalize on greater potential gains and weather the market ups and downs over a longer period of time.
Try SmartRisk out for yourself
You can try the software for free for 10 days, no credit card required. You’ll be able to enter client information and see how easily and quickly the software works. You'll have access to best-in-class risk algorithms, on-screen comparisons, risk alerts and more. Your free trial also gives you access to our dedicated support team. Take your risk discussion to the next level by properly setting downside expectations.and Create peace of mind for your clients when you identify their risk tolerance and align it to their actual portfolio risk.