When the market gets volatile, Mark DiGiovanni tells his clients to turn off the television and Internet and go work in the garden.
That's just one of a number of ways advisors tell their clients to deal with a market that is jumping up and down; for many advisors, however, the primary focus is to keep their clients from panicking during the types of downswings the market is now experiencing.
“Ninety-five percent of the time, the best advice is to just sit tight,” says DiGiovanni, founder and president of Marathon Financial Strategies in Atlanta.
His planning philosophy is designed to allow them to do just that during troubled markets. DiGiovanni’s clients usually have 18 months of needed funds in a money market account, another five years worth of funds in bonds or fixed income, and money in stocks that does not have to be touched for at least six years.
“There are only two times you need to think about making a move in the stock market: sell when the price/earning ratio gets above 25, as it did in 2000 right before the tech bubble burst, and buy when the price/earning ration drops below 10, as it did in 2008. Both are great opportunities. Otherwise you sit tight,” DiGiovanni says.
On the other hand, advisors such as Adam D. Koos believe in technical analysis, determining market momentum rather than using a buy and hold strategy.
Koos, president and portfolio manager of Libertas Wealth Management Group Inc. in Dublin, Ohio, says clients do not make any money unless they sell the investments they own at a profit. This can be done by charting the momentum of the market, he says.
Koos says he uses a complicated system of ranking stocks on a buy/sell trend to look for weaknesses in the market. Using moving averages, he says, an advisor call determine and take advantage of market trends.
Critics call technical analysts market timers. “This could not be further from the truth,” says Koos. “No one can predict what the market is going to do tomorrow. I am a trend follower.” Trends can be determined by charting where the market has been, he says.
Other advisors practice a middle ground approach. Laura Brown, an advisor with Clark Street Financial in Scottsdale, Az., says her firm communicates regularly with clients so they do not panic during downturns.