educate clients about market volatility Archives

Three Analogies to Use in Volatile Markets

/ by Don Connelly / Storytelling, analogies and power phrases / 0 comments

Obviously, the stock market’s volatile and you’re going to encounter volatility your entire career. It’s the normal part of the market. Even though volatility is normal, it makes clients very nervous. Fear is a bigger emotion than greed.

One of the challenges for you in volatile markets is that clients can slip into a behavior called anchoring. When clients give you a specific amount of money, that becomes the anchor amount of their portfolio. They refer back to that initial amount when evaluating any ups and down in value. Let’s say hypothetically that a $100,000 portfolio falls in value to $90.000. Right away, they think to themselves, “Oh, it’s broken.” Something’s wrong.”

5 Relatable Analogies to Explain the Perils of Market Timing to Clients

/ by Don Connelly / Investing Wisdom, Storytelling, analogies and power phrases / 0 comments

Let’s face it: Most people are lousy timers. Think about the last time you switched to the shortest line at the grocery checkout. That feeling of smugness turns to scorn when the line crawls to a halt while the longer lines churn through.

Or, when you constantly switch to the fast-moving lane on the freeway only to watch a long river of red brake lights stretch out in front of you. The actual cost, in terms of time, frustration, and dignity, almost invariably exceeds any possible gain you might have achieved by making the switch.

The stakes for investors seeking bigger gains or cutting losses by timing the market are much higher.

Financial advisors know that few people, if any, are adept at picking winners or predicting the market’s direction. Yet many still try, often driven by the powerful emotions of fear and greed.

How to Talk to Clients About Market Volatility

/ by Don Connelly / Investing Wisdom / 2 comments

You don’t hear people talk much about market volatility until stock prices suddenly sell off. But when your clients watch their portfolio value decline unexpectedly, it can be terrifying, leading many to make potentially costly mistakes, such as selling into a steep market decline. Though we’ve experienced many volatile markets over the last 20 years, advisors must help clients understand that volatility is not their enemy.

Financial Advisor Do’s and Don’ts During Extreme Market Volatility

/ by Don Connelly / Investing Wisdom / 0 comments

Financial advisors play a vital role in helping clients achieve their most important financial goals. But where they really earn their fees is during times like these, when helping clients navigate the choppy waters of extreme market volatility. Clients look to their advisors to guide them through scary times and reassure them that everything will be okay.

Emotions run high when the market turns volatile. When stressed, humans instinctively want to do something and take some kind of action to reduce or eliminate the threat. That’s when mistakes typically occur. The value of a financial advisor rises in direct proportion to the anxiety levels of their clients, who look at volatile market swings as a threat to their financial security. The critical role of financial advisors is to keep their clients from making costly behavioral mistakes. During periods of extreme market volatility, there are some things advisors must do and things they should avoid doing to maximize their value to their clients. Here are a few.

The Slippery Slope from Empathy to Role Reversal, and How to Avoid It

/ by Don Connelly / Managing the Relationship / 0 comments

Successful financial advisors know that expressing empathy is critical in helping them to connect with clients and solidify their relationships. Clients need to know you understand their circumstances and what they may be going through at any given time. However, empathy taken too far can backfire when advisors find themselves sharing the same emotional distress as their clients, which can threaten their objectivity and compromise sound planning advice.

At the extreme, this can lead to advisors relinquishing control of the relationship to their clients and acquiescing to their desire “to fix the problem” in the short-term at the expense of their long-term plan. This type of role reversal is not uncommon for advisors who become emotionally vested in their clients, wanting to do what they can to ease their pain. Suddenly, the relationship is no longer being guided by rational, objective advice; but rather the behavioral impulses advisors are supposed to prevent, such as selling into a steep market decline, or abandoning the long-term strategy just to alleviate the immediate suffering.

Educate Clients about Market Volatility so They Can Confidently Stick to the Plan

/ by Diana Marinova / Best Practices, Connelly Corner / 0 comments

Happy New Year from all of us at Don Connelly & Associates! Hopefully everyone will enjoy good health during the new year, achieving great success both personally and professionally.

As promised, this week we’re posting the second part of the recap blog post, covering two more popular topics our community of Advisors was most interested in during 2020 – market volatility and how to communicate with prospects and clients about it. We’ll also share a few stories and analogies you can use to convince clients to stick to the plan, no matter the market conditions.