Remind Your Clients Investing Is a Marathon
Despite regular and sometimes frightening dips markets continue to rise incrementally over time, continually setting new highs. The problem is that many clients disbelieve this; they panic when the market temporarily falls. As their financial advisor, it’s your job to keep them on track.
You need to get them over their short-termism and make them see that their focus should be on 20, 30 or 40 years from now – not on this afternoon or next week.
Use all the tactics at your disposal to illustrate that investing is a marathon not a sprint.
Patience is the key to clients’ investment success
There are two things required to be successful at investing: Patience and a belief in the continuing success of the US markets.
It’s difficult for clients to envision the reward down the road. But unlike day-to-day traders the gains of a long-term investor come from a completely different market movement, one that happens over many years. Your clients need to learn emotional control; resisting the urge to sell in downturns requires patience and determination.
To get them to understand that patience pays, get them to write down three dates: Their date of birth, the date they graduated from high school, and the date of their wedding. Show them the closing DOW on all those three dates. This can help clients see that they will be better off by settling into a long-term plan.
Use analogies to get clients to look at investing from a different angle
The availability of detailed financial data makes clients nervous, so nervous in fact that they sometimes decide to throw in the towel – destroying their chances of future financial security. Get them to think of investing in terms of gardening.
Gardeners don’t pull their plants up every day to check the roots – doing so would destroy them. Neither should your clients obsessively check what’s happening on the market.
Ask clients if when driving from San Francisco to New York they faced 30 miles of construction at some point in the journey – would that make them turn back? Of course, not. They would simply put up with the inconvenience and carry on to their destination.
The route to investing is the same – there will be patches of ‘construction works’ slowing them down en route, but most of the ride will be smooth and they will eventually get to where they want to go.
Communicate with clients when markets are down
When markets are uncertain communicate with your clients. Re-iterate that their game plan is meant to be followed. Reassure them they did the right thing. Tell them that eventually the markets will calm down, and the fact they stuck with the plan will reap them dividends.
Take a leaf out of Warren Buffet’s book
A highly vocal defendant of staying the course when it comes to investing is Warren Buffett. And he’s living proof that it works. Warren Buffet is one of the richest people in the world, with a net worth of more than $53 billion.
Buffet emphasizes the importance of long-term investment horizons and infrequent selling. In his 1999 book ‘The Warren Buffet Portfolio’ Richard Hagstrom points out that Buffet urges investors to think rationally not emotionally; that investors are often their own worst enemies because they fail to overcome their emotions and become too concerned about the stock market.
The old saying the Dow ‘climbs a wall of worry’ applies. Despite the negativity of the marketplace and people who will always believe a recession is around the corner, the markets have fared well over time.
It’s your job to instill this into clients. As their financial advisor, you need to ensure your clients make it to the end of their financial marathon. By sticking with the plan, they may not become fabulously wealthy – but with your help they will be able to look forward to a secure future – and that’s something they will thank you for one day.