“After an extended bull run, many investors forget that it is normal for stock markets to periodically see intra-year declines in the 5 percent to 10 percent range. Five percent declines happen, on average, four times per year with an average recovery period of two to three months,” Lane says. “Ten percent declines happen on average once per year with an average recovery period of eight months. If your investment time horizon is in excess of 10 years like most of our clients, the odds of losing money in a diversified portfolio are extremely low.”
Bill McNabb, chairman and CEO of Vanguard, also urges advisors to tell their investors to be calm. “Often, the wisest thing to do during periods of extreme market volatility is to stick with the investment plan that you've already devised. “Equity markets have reaped sizable gains over the past six years. Such setbacks, while unnerving, are inevitable.”
A "do nothing" prescription might be tough to swallow if you've been caught off-guard by recent volatility. But McNabb points out that no action is an active decision, and can be the right decision for reaching long-term financial goals.
Mitch Caplan, CEO of Jefferson National Advisors said the downturn in U.S. markets is more likely a symptom of globalization, not a sign of weakness at home.
"It's clear that when you look outside the U.S., markets are pretty spotty," Caplan says. "The bright and shining star has to be a U.S.-based recovery, but the question is whether that can lead to a global recovery. We're in a world where the media is real time, seven days a week. You can log on at any point and get a commentary on what's happening. Today it was compounding what you saw in China, Europe and the Middle East, there was probably some panicked selling after the opening bell, and the Dow was down 1,000 points for a brief moment."
Smith says STA Wealth Management is convincing clients to holster their itchy trigger fingers.
“On days like today, you become as much of a psychologist as a money manager,” Smith says. “People start reacting emotionally.”
Caplan said that advisors’ first task is to parse the downturn to clients.
“We started to reach out to our advisors over the last week to get a sense of their pulse,” Caplan says. “What we’ve heard pretty consistently is that they felt confident in their ability to communicate with a client.”
Mariann Montagne, senior investment analyst at Gradient Investments in Arden Hills, Minn., says Gradient’s advisors are doing a lot of handholding for panicked clients since Friday.