It’s times like this that make being an investor, and an Investment Advisor, so much fun, especially for those who “stayed the course” when the “Chicken Littles” of the world were running for cover. The pain of 2008/2009 is a fading memory, if not already forgotten, but therein lies the seeds of a problem, a false sense of security going forward.
Those of you who remained disciplined and continued to invest in 2008 and 2009 are the real heros. You advisors earned your fees many times over and you investors have reaped a huge reward that makes your financial future a lot brighter. Those who did not, well, you paid the price and hopefully you have learned a valuable lesson.
In the past, when speaking with advisors, I would encourage them to periodically have a conversation with their clients about the unpredictability of the market. I always called it the “investors fire drill.” We all experienced fire drills at school as children and at work as adults. The purpose, of course, was to learn what to do in the event of a real fire. It wasn’t for an expected fire but was intended to teach us how to survive and avoid serious injury if, by chance, there was a fire.
The market provides lots of material for this conversation and a serious “walk down memory lane” can be very useful. Ask clients to recall their emotions when the market was headed down with no end in sight. Calculate the lost economic value they may have sufferred with no discipline. And prepare them for the “this time it’s different” feelings they will experience if the market does head south. Point out to younger investors the long term benefit of contuing to invest when equity prices are lower. Give them examples of the cost of sitting on the sidelines when prices decline.
This “talk” with investors should in no way be considered a forecast, just as a fire drill is not a forecast of a coming fire. But having this talk today is so much better than having it when the market is off 30%. And if we have another 2008/2009 market you can immediately refer back to the “talk” you had with your clients and how they were going to deal with all their negative emotions.