In an ongoing series exclusive to ThinkAdvisor, Joe Elsasser, CFP® and Ron Piccinini, PhD provide readers with two distinct perspectives on the same topic – one from an academic, the other from a practicing financial advisor. The most recent installment was published today, "The Advisor and the Quant: Using a Market Correction to Build Client Trust." In this edition, we asked both Joe and Ron to discuss how to help clients deal with market volatility.
Joe's response included:
Ultimately, market volatility is the reason for a financial plan. When an advisor and client have developed a financial plan in advance, the discussion can remain focused the client’s ability to meet their financial goals, preventing the greed/panic cycle that causes most investors to underperform the market as a whole.
And Ron's response included:
Advisors who will truly shine through the process will have already set realistic downside expectations with their clients, when times were good. Now that volatility has kicked in, it is a great time to dig up the report showing how much downside your clients signed up for, as well as their risk tolerance questionnaire. For example, if a client indicated that they would be OK with losses of 10% in a quarter, and their portfolio is up (or down) 5% for the quarter, it will give them confidence in your investment strategy.
See the rest of what Joe and Ron said in the full article from ThinkAdvisor here.