Supporting investment decisions
In light of recent stock market volatility, the role of the Financial Planner in supporting investment decisions has never been so important.
A new report from one of our suppliers – Distribution Technology who supply the Dynamic Planner risk profiling tool and asset allocation models we use at Informed Choice – points to the crucial role played by advisers.
This crucial role is about more than money; Financial Planners also contribute to the overall mental health and wellbeing of our clients.
To support us in this formidable task, Dynamic planner has created an Investment Uncertainty Checklist, outlining four key issues to discuss with any concerned investors.
The first talking point is to be led by the science.
We know those market corrections, crashes and crises happen periodically. These market events are part of the normal investment cycle.
Market volatility occurs for different reasons and it can be unsettling. But history tells us we can safely expect a recovery following the correction, crash or crisis.
Second is to remember the review planning process.
When we construct the investment portfolios designed to support financial plans, we use long-term return expectations which incorporate the potential for extreme events.
By sticking with the long-term plan, investors are in the best possible position to achieve their long-term financial objectives.
The third is to focus on risk-based benchmarks, instead of high profile indices.
During this market crisis, as is often the case, the media focused on the FTSE 100 index of leading UK company shares.
The FTSE 100 is a poor proxy for the performance of UK companies, let alone for the performance of a well-diversified investment portfolio. Investors will notice that the performance of their portfolio looks very different from the negative headlines they read.
Diversification is such an effective risk-management tool, helping to smooth out equity-market volatility while still participating in market returns.
Because long-term investment success is largely attributed to investor behaviour (staying the course), anything that helps reduce volatility is likely to help reduce investor nervousness, leading to a higher probability of success.
Finally, it’s essential to stay invested.
History tells us that staying invested for the duration, even during volatile times, results in better outcomes for investors than the alternative.
We often talk about ‘time in the markets’ instead of ‘timing the markets’ as a key to investing success.
Ben Goss, CEO, Dynamic Planner said:
“The social science of economics has studied the rise and falls of stock markets for hundreds of years. From Tulip Mania (1604), World Wars, the Spanish Flu (1918), The Great Depression, the 1970’s Oil Crisis, 1987’s Black Monday, the Dot Com Crash and the Great Financial Crisis (2008/9), while the cause of each were different, the recovery came and growth restarted.
“However, when investment risk shows itself in a client’s portfolio, and with a backdrop of such negative news, it is understandable that for some it may be tempting to exit. This is where advisers really come into their own – and those conversations between adviser and client can be the critical difference between feeling anxious and acting.
“The support that advisers are giving clients today will help their prospects tomorrow, not just in terms of their financial wellness, but their overall wellbeing too.”
Since the onset of the coronavirus crisis and the market volatility it has triggered, only a tiny number of our clients have expressed concerns about investment markets and their portfolio valuations.
It’s natural to feel nervous and unsettled during times like this; that’s why we are always happy to talk about any concerns you have with your financial plan.