By: Jonathan Lapine, CPA, CFP®
If you’ve been an investor for a little while, you’ve experienced rough markets before. Intellectually, we understand that this is the nature of investing. Emotionally, that doesn’t mean we have to enjoy watching account balances take a step back during market downturns like the one that has greeted us thus far in 2022.
In Vanguard’s Advisor Alpha study, their research attempted to quantify the value of best practices offered by Financial Planners. They discovered that of all the value a Financial Planner can deliver, the largest benefit took the form of ‘Behavioral Coaching’. Put another way, a Financial Planner needs the courage to advise against a client’s desire to make emotional changes that are inconsistent with their overall goals. “Because investing evokes emotion, advisors need to help their clients maintain a long-term perspective and disciplined approach” the study surmises, adding that behavioral coaching may add 1% to 2% in net return*. Particularly in today’s media landscape, it can sometimes feel quite tempting to act out of worry, fear, or greed. Academics have maintained for decades that acting on emotion carries a low chance of success. Here are some tips, compiled through years of practice, to mentally weather market storms and keep your financial picture on the right path.
You Don’t Have to be Alone! – If you’re attempting to manage your life’s savings on your own, you should recognize that there are significant behavioral biases that exist. Mental Accounting** – the concept where people treat money differently depending on where it came from – is a known bias that may impact an investor’s decision-making. For example, some investors close to retirement can make fear-based decisions that change their retirement picture because they know all too well where their retirement savings came from and don’t want to lose it. Having a professional who has the skills and training to help manage your finances, without the emotional baggage it comes with, can allow your portfolio to approach bad markets with a clear vision. Professional guidance may also lessen the anxieties that come with being the sole person in your household charged with getting your family to the financial finish line.
Stay Focused on the Long-Term – Did this latest market drop impact your ability to confidently live the life you wanted? This is the question you should be asking your Financial Professionals, as the answer tends to be more meaningful to you than how many dollars or percentage points you’re down on the year. If you’re utilizing industry-standard simulations to forecast success, then your financial plan is likely already considering that bad markets come and go. Even if your Financial Plan needs adjusted during down markets to remain successful, you may be surprised at how minor that change could be. If you can’t ask this question because you’ve never had a Financial Plan that provides you with a confident path forward, now is the time to engage a Financial Planner.
Keep Appropriate Context – During tough times, it can help to acknowledge the good times. Amidst a global pandemic that is still impacting economies worldwide, your investment portfolios may have performed well in 2019, 2020 and 2021. Since 1949, bull markets have lasted an average of 70 months compared to the 14-month duration of bear markets***. Remembering both sides of the coin can ease the tension during rough markets.
Know Yourself – It’s important to learn about the kind of investor you are. While acting on your emotions may not be the best move for you, listening to them can help educate you and your Financial Planner on the type of portfolio you need. Not everyone tolerates market volatility the same way and your portfolio should be designed with the appropriate balance and safeguards to get, and keep, you invested for the long haul. Financial Planners understand that their job doesn’t start and end with how much money a portfolio grows, but what they can do to ease your anxiety as you lay your head on your pillow every night.
Fee-Based Planning offered through W3 Wealth Advisors, LLC – a State Registered Investment Advisor – Third Party Money Management offered through Valmark Advisers, Inc. a SEC Registered Investment Advisor – Securities offered through Valmark Securities, Inc. Member FINRA, SIPC – 130 Springside Drive, Suite 300 Akron, Ohio 44333-2431 * 1-800-765-5201 – W3 Wealth Management, LLC and W3 Wealth Advisors, LLC are separate entities from Valmark Securities, Inc. and Valmark Advisers, Inc
The example(s) given are hypothetical and are for illustrative purposes. Actual results may vary from those illustrated
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.