In the world of investing, market uncertainty shaped by various economic, geopolitical, and societal factors is an inevitable reality.

And it isn’t going away any time soon. Uncertainty and volatility isn’t a bug of the markets. Rather, it’s a feature.

During periods of heightened uncertainty, financial advisors (FAs) can provide advice to their clients that extends beyond asset allocation and retirement projections.

Risk of Trying to Time the Market

In times of uncertainty or volatility, the role of the FA evolves into actively managing client behavior and emotions, especially as investors feel a heightened impulse to deviate from the plan or to time the market.

But history has shown that market timing usually comes at a cost — it’s simply impossible to know exactly when the market will take a sharp downturn or reaccelerate.

Financial professionals are uniquely positioned to guide investors through periods of uncertainty by emphasizing the importance of a steady, long-term perspective. Advisors who emphasize a disciplined approach, and who focus on maintaining well-diversified portfolios and suitable asset allocations, can empower investors to feel less anxious and to stay aligned with their overarching financial goals.

Managing Investor Expectations In Uncertain Markets

Two investor types in particular may be vulnerable to making poor investment decisions in uncertain or volatile markets: new investors and those nearing retirement.

Younger Investors Have Less Experience With Bear Markets

Younger investors have far less experience navigating bear markets.

Talk of a bear market or recession may cause investors significant distress, even panic. How can advisors help?

1. Discuss the concepts of risk aversion and loss aversion, and how these can bias decisions. This can help strengthen their investment decision-making framework.
2. Review risk budgeting concepts, like opportunity cost and risk-adjusted return, to support more intentional decision making.

Whether investors see market downturns as opportunities to buy and hold or fall victim to chasing returns will likely depend on their advisor’s ability to steer them away from benchmark performance-focused discussions, and toward decision-making that supports their long-term goals.

Mature Investors May Be Worried About Retirement

More mature investors, on the other hand, may be concerned about the timing of a potential downturn, or their sequence of returns risk.

After all, investors nearing retirement or already retired have few or no income-earning years left to make up for large drawdowns.

How You Can Help Older Investors Navigate Drawdowns

So when markets are volatile or losses are mounting, how can advisors help mature investors avoid panic selling? Or help calm their fears?

It goes back to helping investors mindfully link risk to their goals, time horizon, and life stage, to take advantage of the value that portfolio construction delivers. Instead of trying to time the markets, consider creating an equity glide path that gradually reduces market risk as investors approach retirement or during their retirement years.

Having a plan in place that is designed to achieve one’s financial goals — regardless of the market environment — can help investors feel more confident they’ll have the money they need to enjoy their retirement.

Value of Financial Advice When Uncertainty Strikes

For all types of investors, the key is to balance investment risk with opportunity risk in a way that reflects an investor’s unique risk tolerance.

Investors may have had more than their fair share of market volatility or crises in recent years. It can be helpful for advisors to educate investors on what market volatility is and why it can spike during a crisis. Equally important, they can help them make investment choices in context with their unique life situation:

• What is their investment horizon?
• What stage of life are they in?
• What are their financial goals?

During stressed markets, advisors can play a crucial role in reorienting clients to the long-term outcomes they sought to achieve in the first place — and also review how well-positioned investors are to reach those goals. The best time, however, to start educating investors about potential risks is early in the relationship and before a challenging market strikes.

To help you engage in conversations that reinforce your value as an advisor — ones that help clients put risks in context, identify goals, and reveal biases that may make them vulnerable to poor investment decisions — check out the goals-based planning conversation guide below:

Challenging markets may be inevitable, but they shouldn’t undermine an investor’s ability to meet their long-term financial goals.

The truth is, irrational behavior is an all-too-human trait, even among the smartest investors. As a result, it can be especially difficult to stay the course during a crisis or times of market uncertainty. That’s why an advisor’s role in emotional governance is critical to clients’ long-term success. And it’s why market uncertainty presents an opportunity to strengthen relationships between advisors and their clients.

All the rational financial discussions in the world won’t propel an investor to their goals if they’re not aware of their tendency to make decisions emotionally. That’s where an advisor can add value and, in the process, strengthen relationships with their clients.

More specifically, help investors:

• Become aware of and manage counterproductive biases and behaviors.
  Focus on the basics and what clients can control in uncertain markets, things like portfolio diversification and regular rebalancing.
• Stay invested for the long-term, through periods of volatility or uncertainty.
  Keep investors focused on their long-term plan, which was designed to withstand inevitable market slumps. This can help them avoid counterproductive behaviors when volatility strikes.