Navigating Market Volatility: Strategies for Advising Successful Long-Term Investing

Financial advisors are responsible to their clients to remove the most unhelpful, stress-inducing aspect of investing — volatility. You might fight back, asserting there is no way to eliminate market volatility. However, this fact is irrelevant when assisting investors of all ages and backgrounds.

They must feel protected, no matter how the market feels. Provide quality education on ignoring volatility woes and using it to a client’s advantage.

Investments Are a Long Game

Immediate, spontaneous, and unexpected market shakeups could rattle even the most seasoned investor or financial professional. Nobody likes a bear market, and it could make anyone forget years of training in buying and selling. However, financial professionals have to urge clients to refrain from obsessively checking their portfolios and remember how downturns are standard in the long term.

Depending on the client’s investing diversity and risk, they should recall investments like index funds only truly demonstrate their value after several decades. Line graphs show hills and valleys but a consistent rise in each.

Everything Impacts the Stock Market

Reminding clients investing is for the long haul is one strategy. Extend that to comprehensive education.

Learning more about investing and expanding that curiosity about financial wellness will attune clients better to the reality of the market, reducing how surprised they are when volatility impacts them. These are only a few of the influences outside of investors’ control that can cause a market upset:

  • International disputes or wars

  • Natural disasters

  • Global events, like the COVID-19 pandemic

  • Debt crises

  • Supply and demand

  • Cybersecurity and infrastructure breaches

Regulated Avenues Are Optimal

Years ago, cryptocurrency was the hot investment option. However, it has the most market volatility of any investment option because it isn’t regulated. There is minimal federal legislation surrounding the crypto market, holding investors at the mercy of other crypto investors.

Though some might question the difference — as any market has an equal opportunity to fluctuate — there are objectively more reliable options than others. Despite jaw-dropping positive returns from some crypto investments, choosing more stable options like rental properties or the S&P 500 for manageable investment allocations is better.

Investment Goals Are Adjustable

Clients will want consistent communication throughout market slumps more than at any other time. If panic is associated with these moments, it might be the ideal time to evaluate their risk commitments. Perhaps they felt more confident with higher-risk choices at the beginning of their investment journey when they weren’t familiar with downturns. It feels different when the percentages hit the customer’s face as points drop.

Demonstrate how clients can overcome these chaotic choices by readministering funds to safer places. It prevents customers from leaving the investment game altogether in an emotionally charged response.

Seeing the Down Market as an Opportunity

Nobody has to feel completely broke after a stock market crash. There are specific systems to help ease the blow — notably for tax filers. Here are some of the best money-loss hacks in the investment scene:

  • Tax loss harvesting: Clients can offset gains with market losses to pay fewer taxes. It only applies to investments sold for less than the purchase price.

  • Roth IRA conversions: Lower taxes yet again by taking tax-deferred income and moving it to a Roth IRA where owners can make withdrawals tax-free — depending on penalties.

  • Loan refinancing: Whether it’s a car or property, taking advantage of the down market could mean lower interest rates for owners or opportunities to execute owner-carried financing, making the sting of market losses hurt less.

  • Contribute more to retirement: Instead of putting more money into stocks during a volatile market, consider bolstering other accounts not affected by the market, like employee-sponsored retirement or emergency savings.

Dollar-Cost Averaging Changes Minds

Some people leave their investments to robo-advisors or humans, ignoring the nitty-gritty details of buying low and selling high. Another way to remove the overthinking from investing — which will help cope with market lows — is a dollar-cost averaging strategy. It’s a more hands-off approach that keeps the client from overanalyzing dollar signs, which might be healthier for them.

Dollar-cost averaging is like automating a savings fund for a vacation. It makes investors schedule regular, fixed dollar amounts into their portfolios, regardless of the market. It has the advantage over traditional investing because it forces a trait into the system that isn’t always there — consistency.

If explaining this to clients provides them peace of mind, consider how it could help them ride depressive market times. Regular commitments could mean more than those attempting to buy and sell at the objectively most profitable times.

Maintaining Financial and Emotional Resilience Investing

Market volatility doesn’t have to be the most fear-inducing influence on an investor’s or financial advisor’s life. Though clients will approach, begging for ways to recover and cope, there are numerous options for every personality and economic circumstance. Financial freedom is about accumulations over a journey, not a destination with a single stop.

Related: Will the Future Be More Volatile for Equity Investors?