How to Support Clients in Staying Invested During Volatile Markets

Over the past century, financial markets have experienced various periods of significant volatility—resulting in both losses and gains for investors. As a financial professional, you know the value of staying invested during volatile markets, particularly for clients who are investing for the long term.

But how do you keep clients focused on that far-off horizon? With conflicting financial information available, communicating to your clients the importance of a sound and diversified long-term investment strategy is critical.

“At Ameritas, we focus on managing risk in our investments,” said Tina Udell, senior vice president – chief investment officer of Ameritas. “We do this through diversification, matching cashflows of assets with liabilities, and ensuring we have enough liquidity to meet our commitments. These strategies help protect our portfolios from unexpected risks and market disruptions, allowing our asset managers to find opportunities even during challenging times.” 

Volatile periods are a time when clients are eager to hear from you to get an explanation and to receive some guidance on what they should do. Most clients are not looking for technical analysis of what is going on in the markets. Instead, they want reassurance that they’re on the right track.

For newer clients, a good place to begin is explaining the reasons behind market fluctuations. Then you can discuss how best to weather the storms of investing in volatile markets—and what products can help diversify their portfolio.

Share the history of market cycles

As you discuss market volatility, tell your clients that corrections are a normal and healthy part of market cycles. Point to historical data that shows the frequency of similar events.

The U.S. is no stranger to market fluctuations—or to the impacts of massive market shifts. The most well-known example is the Great Depression of the 1930s, when plunging prices caused a national crisis. Before that market drop, however, the U.S. enjoyed a decade of rapid financial growth. This period, known as “the roaring twenties,” was filled with technological advancements, increased industrial production and easy access to credit for investors who had survived both the first World War and the worldwide influenza epidemic of 1918. This influx of money and buoyant atmosphere led to a speculative frenzy in the market…which corrected sharply with the market crash of 1929.

Another key period of market volatility took place in the 1980s and 1990s, when investors saw the rise of technology companies. This served to drive prices up very quickly, particularly in the tech sector but also in supporting business sectors. After several years of prosperity—and due in part to a marked lack of enforcement of credit and borrowing practices—the U.S. and world experienced the housing crisis of 2008. The market dropped swiftly, financial institutions faced severe liquidity issues and housing prices plummeted.

Sharing additional historical context can help put your clients at ease:

• It’s not unusual to have more than one correction during a bull market. History has shown that some of the worst short-term losses in the market were followed by rebounds.
• Since its inception, the market has experienced bull markets, corrections, bear markets and crashes. Through all the ups and downs, the market has historically trended higher; however, past performance does not guarantee future results.

What’s driving market volatility?

Given that these cycles keep repeating, what are the key factors that lead to market volatility? They can be broken down into economic, political and emotional triggers.

Economic triggers. Investors in the market rely on data to make their investment decisions, and that data is generally drawn from economic indicators such as the growth of the U.S. gross domestic product (GDP), employment rates, inflation and interest rates. When the economic data is good, investor confidence goes up and more money tends to be invested. When economic data is more challenging, fear and uncertainty cause investors to adopt more conservative investing practices.

Corporate earnings also play a role. If a company (or a group of companies in the same sector) performs well, markets stay stable. If a company doesn’t perform well, investors might decide to sell their shares in that company, contributing to market volatility.

Political triggers: Political instability—both in the U.S. and internationally—can also lead to market disruption. This instability can be caused by trade interruptions, major policy changes, wars or regional conflicts or natural disasters that impact a country’s ability to export or import goods. The result is usually market volatility. Investors are forced to assess the risks and opportunities these events create, and their decisions can send prices up…or down.

Emotional triggers: Although investor decisions are generally based on solid financial strategy and a cool, considered valuation of companies and products, emotions can still play a significant role in the market. When investors panic and sell all at once, overall prices can drop. When optimism is high and investors buy aggressively, prices can rise rapidly. The greater the emotional swing, the stronger the overreaction of the market—which will eventually correct itself and move back in the other direction.

Encourage your clients to stick to their long-term strategy. People tend to get out of the market at a time when they may have already lost money. Then they think they can get back in when it starts to go back up. By then, significant gains could have already been made. Bad timing can be very costly.

Discuss the importance of diversification

Having a diversified portfolio helps to survive market volatility. This means not only investing in companies across several business sectors, but also including several different types of products in an investment portfolio. In addition, clients who focus on a long-term investment horizon can absorb the negative impacts of a short-term fluctuation, while taking advantage of the overall growth potential of the market.

Key products like life insurance and fixed annuities can help strengthen and stabilize an investment portfolio, helping clients stay focused on the long-term growth of their investments.

Life Insurance – Life insurance can help round out a client’s overall portfolio by offering the potential for guaranteed growth and protection regardless of market performance. Share this blog article with clients to show them how life insurance can help them manage market volatility. Simply select a social media share button at the end of the article to post it to your own social media feed.

Fixed annuities – An indexing strategy using an indexed annuity may help protect against market fluctuations. This gives your client the potential to earn higher returns with an interest rate that’s linked, in part, to the performance of one or more market indexes. Since they’re not investing in an actual index, they are protected from market losses. They won’t lose money due to negative index performance. Share this blog article with clients to show them how an indexed annuity helps protect against market volatility. Share it with clients by selecting a share button at the end of the article.

A diversified portfolio that includes life insurance and fixed annuities doesn’t guarantee profits or completely shield a client from losses, of course. But it can help provide a stable foundation for a client’s investments and give them the confidence necessary to stay invested during volatile markets.

Surviving market volatility

Remind clients that they’ve planned for the long-term, with short-term volatility in mind. While a correction can be upsetting, there’s no reason to deviate from their long-term financial strategy. You might consider sharing this blog with your clients, 7 Tips for Surviving Market Turbulence.

Over time, the economy expands, companies create new products and services and new opportunities emerge. Staying the course with investments over many years provides the potential to participate in the benefits of these developments. In addition, the compounding effect of reinvesting earnings over many years could also increase a client’s earning potential.

Although volatility can be unnerving for clients looking solely at short-term impacts, the U.S. market has shown remarkable resilience over time as well as consistent, long-term growth. Why? The market is based on thousands of companies whose primary goal is to generate profits year after year, and those profits have the potential to drive prices higher. However, it is important to note that past performance does not guarantee future results.