The recent 10% stock pullback created some disproportionately alarming news headlines during a few days in January and early February. (I got panicked texts from relatives wondering if the next Great Financial Crisis or Bear Market was imminent.)
Fortunately, RIAs know better than most in the news media that “the great market meltdown of 2018” was not bad news—but possibly cause for optimism. Why?
- The hot economy. The economy is expanding—at an increasing rate, and that’s a pretty good indication we’re not heading for a bear market anytime soon—despite equities losing significant value off recent highs. Goldman Sachs reported that there have been 11 market pullbacks of at least 10 percent since 1976 that occurred in an otherwise strong economy. And none of those corrections—save 1987, turned into a bear market. A bear market in 2018 is unlikely given the following (As reported by Reuters):
- Corporate profits are up. (S&P 500 profits are projected to rise nearly 19% in 2018, according to Thomson Reuters.)
- The yield curve is steepening. (The 10-year Treasury note is 128 basis points above the short-term 3-month bill, wider than the 102 basis points at the close of 2017—a sign of economic strength.)
- Faster declines point to faster recoveries. The entire 10% drop in 2018 took just 13 calendar days before the beginning of a recovery. Historically, investors have recouped their investments in this type of atmosphere within a year or less.
With good economic news, a correction, of course, means investors can pick up bargains! And with regular rebalancing, your clients will benefit from lower cost basis for their investments.
- The need for financial advice. RIAs can smile in rough investment climates because their advice is needed more than ever. You’re probably fielding a few phone calls from concerned clients or even prospects. Choppy markets mean your expertise is valued more than when the DOW does nothing but rise. That’s reason enough to smile! Use the volatility to reach out to clients with emails and letters. Or better yet, host a client educational workshop to calm everyone down.
Inform clients you will be discussing “current events” and your “outlook on the economy and investments.” Bring along a few headlines to discuss. An RIA in Jackson, Mich., has been using this “headline” approach for years. He hosts a morning coffee club in an upstairs room at a local gourmet coffee shop. Twice a month, he sends out invitations to select clients via email. The coffee and muffins cost him about $70 each time. He uses the gathering to keep up ties and reinforce the idea that he’s available to and thinking about clients. He says he’s there to listen. And he brings an easel with him to write on—including giving out his personal cell phone.
You can host your workshop in the morning, afternoon, or evening. Select a time and day that works best with your clientele. If you have many clients who are retired, you may opt for a weekday morning. For those clients who are still working, an evening or Saturday morning workshop could work well.
You can invite your clients via email, phone call, text, letter, or with a general announcement on your blog, Facebook page, or Twitter account. Ideally you want to have been 10-20 people in attendance—including strategic allies.
You could probably start talking about some of the Armageddon headlines in the news lately—and have a well-received workshop!