Market volatility - supporting client conversations

We share some reassurance messages which you might find useful when talking to clients about the impact of market volatility on their investments.

Market volatility is unnerving - even the most confident investors can be unsettled by it.

Our own customer research has told us that investors want to be informed, reassured and feel confident about their long-term savings plans. That's why we keep them informed about what's going on in markets on a regular basis, especially during heightened volatility.

Continued uncertainty around Brexit, along with other factors such as concerns over the future strength of the Chinese economy and issues in the US, are likely to contribute to more volatility in the short to medium term. So we've been setting expectations with our customers about the potential impact of this volatility on their investments. These include core messages around investing for the long term and market volatility being a normal function of a healthy market.

Here we share some reassurance messages which you may find useful for client conversations. It's also an opportunity for you to remind clients about what you're doing to help mitigate the impact of volatility on their portfolios, and demonstrate the value of your advice.

It’s an opportunity for you to demonstrate the value of your advice.

1. Highlight the benefits of investing over the long term

Market volatility is unnerving and differing opinions on what the future holds only confuses matters more. But it's important for your clients to understand that volatility is part and parcel of investing over the long term. You know that when it comes to investing "slow and steady wins the race", but this can be a more difficult concept for your clients to accept.

"Time in the market" is another favourite saying among finance professionals, which your clients could argue is easy to say when things are going wrong. But if you can encourage your clients to take a step back and look at market events in context, you can show why it's consistently the advice you give.

If you can encourage your clients to take a step back and look at market events in context, you can show why it’s consistently the advice you give.

Growth of 10,000 SL brand Dec 2018

Source: Financial Express. FTSE® All-Share Index, total return with dividends reinvested, from 31 December 1985 to 11 December 2018. Figures don't factor in any charges or the impact of inflation. Figures refer to the past and past performance is not a reliable guide to future performance.

The chart above shows the major market events between 1985 and December 2018 (as far back as FTSE® All-Share Index data goes), and tracks the growth of a £10,000 investment over that time. A lot has happened, and there have definitely been times when many investors have been concerned, such as during the global financial crisis of a decade ago. But if that £10,000 had remained invested for the whole period, the growth would have been remarkable - even taking charges into account, which the graph doesn't.

But what's really good about looking at all of the years of activity at once is that it really brings things into perspective. 2016 and 2017 were billed as turbulent years for markets. But if you look at the impact of the Brexit referendum and the US election in relation to everything else that's happened in recent history, it seems far less momentous than it would if we looked at the events in isolation.

2. Encourage them to remain calm

It can be easy for clients to panic when they see the value of their investments fall - it's a very normal reaction. So encouraging them to keep their emotions in check is really important.

You can explain that if they give way to fear and sell their investments, they're likely to be selling after markets have already fallen and, importantly, before they rise again. That means they're locking in losses and will potentially have less money than someone who kept their composure, and their money invested.

On the other hand, if markets are doing really well, your clients might expect you to encourage them to buy into them. But you know that if they do that, they could end up buying at the top of the market, and their new investments could fall in value soon after.

This illustrates why trying to time the markets can be a dangerous game, and catching the top and bottom end of things is extremely hard.

3. Encourage them to focus on what you and they can control

Periods of market volatility are a valuable reminder of the importance of diversifying - and a clear justification of your reasons for spreading your clients' money across different types of investments and geographical locations.

You can show that if they're investing in only one or two of these then they're exposing themselves to quite a degree of risk. But diversifying across investments and countries can help provide a much better balance between risk and return. This is a very real illustration of the value your advice brings.

Nowadays any important event, wherever it happens in the world, may have an effect on financial markets. Your clients can be reassured that you, and any investment professionals you work with, are actively monitoring their portfolios. This means that you can make tactical changes to take advantage of the opportunities presented by changing market conditions.

For perspective on what's happening in global markets, you can read Andrew Milligan's monthly market review for advisers. He's been highlighting for some time now that a correction in equity markets wouldn't come as a surprise. Encouragingly though, he believes there are few signs that a major sell-off is likely in the next couple of years - unless there any major global shocks.

This blog and any responses to comments should not be regarded as financial advice. Please remember that the value of your clients' investments can go down as well as up and may be worth less than what was paid in. The information here is based on our understanding in December 2018 and will not be updated.

The FTSE UK All-Share Index is calculated solely by FTSE International Limited ("FTSE"). FTSE does not sponsor, endorse or promote this fund. All copyright in the index values and constituent list vests in FTSE. Licences have been obtained from FTSE International Limited to use such copyright in the creation of this fund. "FTSE®" is a trade mark jointly owned by the London Stock Exchange Plc and The Financial Times Limited and is used by FTSE under licence. "All Share" is a trade mark of FTSE.

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