“I’m worried, so I think I am going to wait.” When clients get worried, they often sit on the sidelines, staying out of the market or deferring taking action. Their worries are often legitimate. What do they worry about?

1. Is inflation out of control? People who lived through the 1970s remember inflation well. In fairness, the 15-year-old of 1975 is the 62-year-old of 2023. Rates reached and stayed in double digits for quite a while. Will it happen again?
Discussion: This is a story that is unfolding. The Federal Reserve has publicly said they are committed to bringing inflation down. Supply chain bottlenecks seem to have been solved. The bottled-up demand post pandemic had a couple of years to get satisfied. What companies and industries benefit in times of inflation?

2. Will interest rates continue to rise? Let us assume the world is made of savers and investors. Savers like to get interest payments, knowing they get their principal back when their bonds or CDs mature. Investors seek a higher return by investing in the stock market, bearing in mind they are taking risks because of the uncertainty. As interest rates rise, fixed income becomes more attractive. One of the reasons I heard (but cannot document) for the 1987 stock market crash was 30-Year U.S. Treasury Bonds reached a yield of 10%. Institutions like pension funds could lock in double digit returns without the risk of exposure to the stock market. People might think: Why commit now if interest rates might go higher?
Discussion: The majority of interest rate increases might have already happened. Many things run in cycles including interest rates. It may make more sense to ladder fixed income investments now instead of waiting to try and catch the peak. This brings up another Wall Street axiom: “No one rings a bell at the top or the bottom.”

3. World affairs are unsettled. Open the newspaper or turn on TV news. There is violence in U.S. cities. There are tensions in Asia. Ukraine is in the news almost every day. The world order appears unsettled. Could things get worse? Do you want to be fully invested if things went from bad to worse?
Discussion: We are good at looking back in time and remembering when life appeared to be simpler. There have always been world tensions going back at least 90 years. Afterwards, when things are resolved, we tend to think “That wasn’t so bad after all.” Over that same period, the stock market has moved upward. It doesn’t go in a straight line. It has its ups and downs, but for people who buy good stocks and leave them alone, things have worked out pretty well regardless of world events. You need to take the long view.

4. Is the stock market in a slump or worse, a bear market? This can be an issue for people who got into the stock market between 2009 and 2020 because that 11-year period was the longest bull market in history. They have not seen a down market or might assume they last the same length of time. According to centerpointsecurities.com, the average bear market lasts less than two years. Bear markets tend to be defined as a 20% drop, staying down for at least 60 days. A correction involves a 10% drop for 60 days.
Discussion: It is natural for the stock market to pull back or take a breather after it has gone up for a long time. When you see the stock market cycle down, then move back up, this is best described as volatility. It’s like two evenly matched superheroes fighting it out. If you use money managers, let them do the worrying about when to get in and get out. When the stock market turns from negative to positive, the move can be sudden and sharp. Let the experts handle it.

5. Has the U.S. lost its way as a global powerhouse? At one time the Roman Empire ruled the known world. A couple of centuries ago, “The sun never set on the British Empire.” Then things changed. Is the U.S. going through a similar transformation?
Discussion: This gets talked about a lot, but let us remember the U.S. has the world’s largest economy. Using 2021 figures from worlddata.info, the U.S. economy is $23.315 trillion, followed by China at $17.734 trillion. Japan is the next largest at $4.940 trillion. The entire European Union is estimated at $16.6 trillion (2022). The U.S. dollar is considered the world’s reserve currency. Oil on the world markets is priced in U.S. dollars. Change happens, but historically when there is trouble in the world, foreign money flows into U.S. markets, long considered a safe haven.

6. Will taxes go up or change dramatically? Ben Franklin has been quoted in various ways saying the only things certain in life are death and taxes. Some clients might want to wait and see how tax laws might change before they invest.
Discussion: Tax laws are dynamic. They change every few years. They get modified and interpreted. Tax laws are also used to help direct investment to where the government wants people to spend money. The tax credit for buying an electric car is a good example. It is important to bear in mind investing is about making money. Wall Street has another axiom, “No one ever lost money taking a profit.” That one is attributed to Bernard Baruch. You can hire a good accountant to sort out the rest.

7. Should I be investing in new technology that I don’t really understand? Warren Buffet is famous for many things including investing in basic industries. He once said: “Never invest in a business you cannot understand.” He has also admitted he missed opportunities.
Discussion: It does make sense to invest in emerging technologies through people who know what they are doing. This is often done through mutual funds and separately managed accounts. You keep risk tolerance in mind. Because there may only be a few long-term winners from a field of many participants, buying a selection through an active manager can be a prudent approach.

8. The smart money gets out of the stock market early. This implies there are only winners and losers. The smart money sells early, leaving others to ride the market down. This has been true in stock scams and is known as “pump and dump.” In the wider world of investing, there are many “smart people” out there. They work for many different firms. Not all people look at making money the same way.
Discussion: Every trade has a buyer and a seller. Someone thinks there are compelling reasons to get out. They may be taking a profit, see a greater opportunity and need the money elsewhere or simply need to sell. Someone else thinks there is potential for the stock to go higher. Their reasons for taking action may be entirely different.

It is important to respect your client’s reasons for worrying, but you can also try to present both sides of the argument.

Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book Captivating the Wealthy Investor is available on Amazon.