Keep Your Clients Focused on What’s Knowable and Important
The media has always run rampant with scary headlines. That’s how they increase readership or website traffic. However, in this period of increased market volatility, economic uncertainty, geopolitical upheaval, mixed COVID signals, and deepening political divisions, the headlines can be incredibly overwhelming or, at the very least, extremely distracting.
Trying to consume all the news coming at us 24/7 is like trying to drink from a firehose. It’s critical to understand that the barrage of bad news and hype around market events can trigger emotional reactions that often lead to making costly decisions around their finances.
Turbulent markets cause clients to follow their accounts more closely, scrutinizing every move in the market. Research has shown that the more clients check their investment accounts, the more likely they want to tweak their portfolios, which typically leads to underperformance. It’s this type of emotional involvement with one’s investments that often leads to costly behavioral investing mistakes, such as panic selling near a market low, exuberant buying near a market top, chasing returns, or simply trying to time the market.
Explain how the media is not your clients’ friend
What the media and punditry won’t tell us is that, while the news may be consequential in the short term, it has little if any impact on us over the long term. While this month’s investment returns or calamitous economic events may be consequential to our lives now, their impact on the markets, and therefore, our investments over a 20- or 30-year time frame, is so minimal as to cause nothing more than a tiny blip on its long-term performance. But you won’t hear that from the media.
Clearly, your clients benefit from greater access to information. However, while the quantity of information has undoubtedly increased, its overabundance raises the question of its quality. In the investment world, quantity over quality produces a lot of noise. It is especially important to realize that these sources of information don’t necessarily have our best interests in mind. While clients need to stay on top of the news and educate themselves, they are better off if it’s done in the context of their own investment objectives and long-term strategy.
Encourage your clients to focus on what they can control
Warren Buffet once said, “I don’t think about the macro stuff—just what’s important and knowable. If it’s unimportant or unknowable, you forget about it.” There are many things that are knowable, but they’re not important. There are also many things that are important but not knowable. Buffett’s advice is to only focus on things that are both knowable and important as everything else is a waste of time.
We can’t know where inflation will be a year from now, much less where the stock market will be. Are they important? Of course, but they’re unknowable. We know that a steep correction in the stock market is scary. But is it important? Not in the long-term scheme of things. It’s how the market works, but it will have zero impact on your clients’ long-term goals.
What do your clients know that is also important?
Your clients know they’re saving and investing for the future. They know how much money they’re making and how much they have invested. They know when they want to retire and the lifestyle they envision for themselves. Thanks to you, they know where they are in relation to their goals and whether they need to make minor adjustments to their investment strategy to stay on track.
That’s what your clients know, and it’s your job to remind them that nothing else matters. Getting your clients to focus on what they know and what’s important to them will have a more significant impact on their financial lives than worrying about the dire headlines of the day.
Make it a point to reach out to your clients to remind them of what they’re working towards and to ignore the news.