Help clients understand market fluctuations

After 11 years of what some may call a bull market, many clients, especially younger ones, may have been caught off guard by the sudden, drastic dip. Although no one could have predicted the outbreak of COVID-19 and its effects on the economy and financial markets — some of which are truly unprecedented — the recent market fluctuations share many similarities with those that have come before. Helping your clients understand stock market fluctuations and how to keep emotions in check can help them navigate turbulent times with more confidence. Creating a sound retirement plan is also essential to minimizing the long-term impact of a down market and will empower clients to reach their goals, no matter how the market fluctuates.

Understanding market performance

Emotions often play an outsized role in financial decision-making. Overreacting to the ups and downs of the stock market can create emotional roadblocks in the retirement planning process. No one likes to feel uneasy, so the gut reaction to a significant market drop may be to completely rearrange a portfolio or cash out. It’s important to help your clients recognize their emotions, but not be ruled by them. Explain that a market fluctuation is just that, a fluctuation, and while there can be dips, there are also upswings — often following broader economic trends.

Market dips are normal and do not always mean a recession is looming. It’s important clients understand that on average, a bear market is a loss of 20 percent or more over a sustained amount of time — typically two months or more. A bull market is a situation in which stock prices rise by 20 percent, usually after a drop of 20 percent and before a second 20 percent decline. Predicting how long a bear market will last is difficult, but clients can take solace in the fact that historically stocks have generally only gone up over the long term. Reassure them that with a sound long-term strategy in place, there’s no need to panic when the market hits turbulence.

Create a flexible strategy

A diversified portfolio can help clients stay on track to meet their future goals. Targeting allocations to long-term objectives that match a person’s time horizon and risk tolerance can help reduce the chance of market-related losses derailing a client’s strategy. Diversification can help strengthen a client’s portfolio by seeking more consistent returns in volatile markets, managing risk and yielding new opportunities for growth. As retirement approaches or financial goals change, you can adjust accordingly.

Include guaranteed income

Including guaranteed income solutions can help ensure a client will have a steady paycheck in retirement, no matter how long those golden years last. A fixed indexed annuity, for example, can offer guaranteed lifetime income, while also providing growth potential. Plus, there is no risk for market loss to the annuity’s accumulated value, so even if the market has a downswing, that money will remain protected. This guaranteed paycheck can help fill in the retirement income gaps that Social Security and traditional pensions and retirement plans do not cover, and help a client be prepared for rising costs down the road.

While no one has control over the stock market, we do have control over how we prepare for the future. Helping your clients understand market cycles and the value of a carefully planned retirement strategy can help them ride the ups and downs with more confidence and keep them focused on the bigger picture of long-term financial wellness and security.