How To Handle The Coronavirus Downturn
What should we do about the market sell-off?
What are you advising people do with their portfolio in light of coronavirus?
What’s your best plan of action, given the downturn?
… These are just a few of the questions that have popped into my inbox over the last few weeks, but not from clients — from journalists. As my phone sat idle from my clients who weren’t concerned about the market shift, members of the media were eager for nuggets of sage advice that could calm the general public.
As a financial planner, I’ve always tried to manage the things in my client's lives that I can control, like taxes, estate planning, and their overall decisions around investing.
I’ve found that when you do this well, your clients won’t worry as much about scary times, or the kind of market turmoil we’re living through today. Today we are faced with a pandemic that the economy is ill-prepared for, and the stock market is handily wiping out those stellar 401(k) returns we’d all enjoyed.
In a recent survey of 1,000 Americans from LendEDU and Pollfish, 63% of respondents said they were worried that Coronavirus and its impacts would seriously damage their retirement savings and plans, and 57% of respondents said they were worried about job security. And all this is happening in a presidential election year, which only lends additional fear and uncertainty to an already fickle market.
Understanding The Financial Advisory Industry
In keeping with politics, times like these always remind me that the investment industry functions a lot like the Democratic and Republican parties: Two separate camps that don't work well together, and often compete with each other. Let me explain.
I’ve found that financial professionals usually come from either Wall Street or from the insurance industry. Wall Street alumni believe that wealth comes from your investing prowess and your ability to grow your money in Wall Street products. The insurance industry sees things differently. In the old days, insurance offered wealth protection — if you put your money in a product and paid the appropriate fees, you gained benefits for your family and received a guaranteed contractual return. You could be comforted in knowing that you’d shifted your market risk to the insurance company.
But today, public stock insurance companies have changed their priorities from protecting the insured's wealth to making profits for stockholders. It’s no wonder investors no longer trust insurance companies; the apparent conflict of interest is difficult for even the most ethical of companies to balance.
Thankfully there are still mutual insurance companies and credit unions that don't directly benefit from taking risks with their investors' money. When they earn a profit, they’re contractually obligated to give it back to their policyholders. They have one interest, and that is to protect your money and meet their contractual obligations — yes, it might sound dull, but it’s comforting in this market environment.
As an independent advisor, I believe that most client's portfolios need both Wall Street products and insurance industry products to function optimally. After all, you have to put your money somewhere, and I’d advise against Bitcoin just as much as I’d advise against keeping your millions under a mattress.
Going back to the concept of focusing on the things we can control, it’s important to point out that the stock market is not (and has never been) one of them. The stock markets' very nature — it’s very function, even — is to shift corporate risk to company shareholders, and spread the “burden” of ownership around. There are some huge potential upsides; investors just have to be willing to ride out the valleys in the market and not get burned by emotional reactions. It’s always the long-haul investors who walk away as winners.
What Will We Learn From This Recession?
In my 40 years as a Certified Financial Planner, I’m now facing my eighth market meltdown. I can only hope that new generation of financial advisors understands that the difference between what they can and can’t control. As financial advisors, I believe our job is to help our clients make the best decisions and help them protect the wealth they create — not risk it unnecessarily in the market. It is in these scary times that investors crave certainty.
My hope is that both Wall Street investment advisors and insurance industry professionals can reach across the aisles to enable a more ready blending of these properties in clients’ portfolios. It truly is the best of both worlds.
As for all those questions I’ve been getting from the press the last few weeks, the answer from me (and from every other advisor at my firm) won’t change: There will always be scary times. The secret to investment success is to do precisely the opposite of what your emotions are telling you. It might be too late to react to today’s market volatility. But it’s never too late to make a plan for next time. And there certainly will be a “next time.”
YOU DON'T HAVE TO FACE THIS UNCERTAINTY ALONE!
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