Sitting at the beach recently, I found myself pondering how nice it would be to have the summer off. Having said this aloud, however, I was quickly brought back to reality when my wife said, “But what would you do?” and my instinctive “nothing” was met with a stern gaze.
Now, of course, I didn’t mean absolutely nothing. Rather, I meant having the opportunity to truly relax and recharge, to make sure I’m on course for the person I want to be. My wife, nodding approvingly, understood, although my quoting John Lennon, Oscar Wilde, and Walt Whitman to underscore my point probably won’t help me in the long run.
But when it comes to investing, clients often hear “nothing” as counter to wealth creation, especially given today’s fire hose of information and suggestions, whether from the media or their families, friends, and colleagues. This is where you—by saying “let’s do nothing”—provide significant value.
It’s not always easy, I know. Here are three tools to help you in these often tough conversations.
When a client wants to keep up with the Joneses
The perils of performance-chasing are well documented. Yet it continues.For clients who follow fund ratings or are always looking at performance tables or just have a friend who has found the winning fund, here’s a chart that should go a long way towards enlightening how we shortchange ourselves.
For the ten years ended December 31, 2015, fund investors trailed the funds they invested in by 140–230 basis points per year.
When a client is rattled by a market event
The pressure to make changes can be greatest at the worst possible times. However, in the chart below, we can see that staying the course and doing nothing but rebalancing would have benefited an investor significantly more than making an ill-advised decision in March 2009 to eliminate exposure to equities.
When a client is worried about stocks’ general direction
While stocks have historically gone up over longer periods of time, we know that they don’t go up every day, week, month, or year.The chart below can help your clients understand that the market is always in a state of flux and could typically be described as “difficult,” “challenging,” or “tricky.”
Understanding that losses are the one constant across time should enable clients to mentally trade short-term unhappiness for long-term positive results.
Combating the illusion of control
The alpha you can consistently deliver is helping your clients understand that endless or knee-jerk changes to their portfolios may feel like control but are actually detrimental to their long-term financial well-being.
In the face of overwhelming information, overreaction is an instinctive impulse. But with the right strategy in place and the right coaching, “nothing” becomes the instinct, with the result being less stress for you and your clients.
I’m hoping these charts can help you to that end, allowing your clients to relax a bit and watch “the wheels go round and round.”¹
1 John Lennon, 1980. “Watching the Wheels.” On Double Fantasy (John Lennon and Yoko Ono). California: Geffen Records (vinyl record).
- All investing is subject to risk, including the possible loss of the money you invest.