Taking Emotion Out of Investing

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The volatility in the stock market due to the COVID-19 pandemic is stirring a range of emotions, including fear in even some very experienced investors. Some of these investors might be your clients. As their financial advisor, part of your job is to help your clients look past any emotions they may be feeling and allow them to focus on their plan and objectives.

Controlling What You Can Control

It’s important for advisors to stress to clients that there are certain aspects of investing that are within their control and others that are not. Things like asset allocation, the amount contributed to a 401(k) and similar factors are within their control. An event like the COVID-19 pandemic and its impact on the markets and the economy are clearly out of anyone’s control.

Taylor Schulte, CFP of Define Financial, concurs. “Our guiding philosophy is to focus on things you can control. Extreme market events will happen, and we regularly set proper expectations with our clients, reminding them that investing does involve some uncertainty. We also factor those events into our financial plans and, therefore, our clients can feel confident staying on course when the market experiences significant downturns.”

Focusing on the Financial Plan

It’s important to guide your clients to focus on their financial plan and long-term goals.

“The most important thing for clients to focus on during these times is their plan,” says Lawrence Sprung, CFP of Mitlin Financial. As advisors, we need to keep clients focused on their ability to reach their goals, and this will significantly reduce their anxiety regarding market volatility, which is something we always need to expect.”

As we saw during the financial crisis in 2008, many investors panicked and sold out at or near the bottom of the market. They not only realized losses on their investments, but then missed out on some or all of the market’s gains that followed in the ensuing bull market for stocks. Sadly, many of these investors saw their plans for retirement and other life goals seriously impaired.

 

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