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Advisors—and Clients—Aren’t Rattled by Market Plunge Getty Images

Advisors—and Clients—Aren’t Rattled by Market Plunge

Many advisors have trained their clients to expect the kind of market volatility seen Monday. And while most aren’t making any sudden movements, some are tweaking asset allocations.

The U.S. stock markets took a freefall on Monday, after China devalued its currency for the first time in a decade, the latest salvo in the trade war with the U.S. The Dow Jones Industrial Average tanked 767 points Monday, the S&P 500 was down 3%, and the Nasdaq Composite slipped 3.5%, bringing back memories of October 2018. (At its worst, the Dow was down 961 points.) But advisors—and their clients—weren’t panicking on the news; most advisors said they had been anticipating such a decline, so clients were prepared for it accordingly.

“I have not heard from any client today, and I'm not surprised. I spend a lot of time educating my clients early on about ignoring the short-term noise and the fear/greed media cycle,” said Elliott Weir III, founder and financial planner at III Financial in Cedar Park, Texas. “In the past, I have sent emails reminding them of the value of a long-term approach. I also remind them that their money is invested in a way that it can handle short-term losses like today. I have an email distribution list of clients I feel would value reassurance on days like today and use it whenever needed.”  

Most advisors prepared their clients well for such volatility, setting expectations for market ups and downs, so the calls were not pouring in.

“They are well-educated and know that we will merely advise them not to panic, that a downturn is expected at any time and that long-term investors are never reactionary,” said Kendrick Mattox, partner and senior investment advisor at Edge Capital Group in Charlotte, N.C.

His advice to clients: “Be long term, never panic, don’t be reactionary and use all downturns as an opportunity to rebalance.” 

CLS Investments is reaching out proactively to a select number of clients who are typically more anxious around market events, saying the firm is sticking with their initial investment plan and risk tolerance.

Kris Maksimovich, president of Global Wealth Advisors in Dallas, said he heard from a couple of clients and reminded them of what happened in the fourth quarter 2018 and in May of this year. “We saw quick rebounds in response to temporary agreements not to raise tariffs. It may be different this time, but that is anyone’s guess, and we prefer to allocate to our client’s long-term capital needs and not play the guessing game.”

Most advisors told that they don’t respond to short-term fluctuations in the market; therefore, they weren’t making any changes to client portfolios.

Maksimovich said he was rebalancing out of some higher-risk positions toward more defensive sectors, such as health care, utilities and consumer staples. His firm is also favoring more value-oriented securities over growth.

Perhaps an outlier, David Anthony, president and portfolio manager at Anthony Capital in Broomfield, Colo., said his firm anticipated a market sell-off after the Federal Reserve’s rate cut and took a short position in the Russell 2000 index just last week.

“We communicated to clients that the math simply didn't make sense that the federal reserve would be cutting interest rates if everything was rosy in the economy and the worldwide marketplace,” he said.

CLS plans to take advantage of the mispricing in securities the firm likes and make some small rebalancing trades into areas like U.S. value stocks, said Case Eichenberger, senior client portfolio manager at CLS, based in Omaha, Neb.

Liam Timmons, president at Timmons Wealth Management in Attleboro, Mass., does not plan to shift asset allocations.

“If you spend time to get to know a client’s goals, timeframe and risk tolerance, you can develop a strategy that offers the right balance of diversification and return which allows our clients to sleep at night (while avoiding emotionally-driven investment decisions which impair longer term objectives),” he said. “We emphasize that the latest ‘crisis of the week’ is just another bump in the road which we have to deal with as investors.

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