by Russell T. McAlonie, ChFC®, Financial Advisor, Wealth Management
Most HR professionals wear many hats at all times, so when the market is uncertain, it can be difficult to manage participant concerns and expectations and communicate effectively. Yet, it is very important for the message to be timely and succinct in an effort to prevent plan participants from having emotion guide their investment decisions and having them make rash choices in a panic. It is important to have an advisor with a strong education program support you in your communication efforts, as well. At Oswald Financial, we like to have our education specialists tailor the presentations and one-on-one meetings to address potential employee concerns to help plan participants weather the storm effectively. Below are some important considerations that we try to communicate to investors.
Have a Game Plan
It is important to not let emotions guide investment decisions and not give into fear. A core-and-satellite approach combines the use of buy-and-hold principles for the majority of a portfolio with tactical investing based on a shorter-term market outlook. Although diversification does not ensure a profit or guarantee against loss, it may also come in handy when thinking of offsetting risks of certain holdings with those of others. When an investor’s portfolio is well-diversified, with multiple asset classes, it is often useful to look at its overall performance against benchmarks for some perspective.
Understand Your Strategy
A good strategy helps an investor be prepared when the inevitable ups and downs of the market take place. When the market goes off the tracks, knowing the investment selections within your portfolio is helpful. Understanding why specific choices in the portfolio were originally made can be beneficial when an investor wants to gauge whether those reasons still ring true, independent of what the market at large is doing.
Market Fluctuations Are the Norm
The financial markets have been cyclical throughout history. That means that if you have regrets or wish you had made changes, you may likely get another chance in the future. When the market is volatile, it may not be advisable to restructure your whole portfolio because if an investor moves their savings to less risky investments or pull money out of the market, that investor could lose out on any gains if and when the value of those investments goes back up.
History is on Your Side
History is on the investor’s side when it comes to learning from mistakes. During bull markets, investors tend to look good. It’s important to remember that a smart strategy is proven over time, after weathering the inevitable ups and downs of the market. Many people know that it is smart to sell high and buy low, so it is important to communicate the importance of continuing to save even if the value of your account fluctuates. A retirement account is designed for long-term savings, so continuing to save can provide an emotional cushion and help plan participants to focus on the future and not get discouraged. Looking back on overall progress and the market’s historically largely positive performance can help in the same manner when patience in down markets is key. Even the worst market declines are usually followed by a significant recovery Remember the 2008/2009 market drop? The S&P 500 had rebounded by 53.6%. If an investor pulls out of the market and avoids potential losses, will he know when to get back in? No one can time the market perfectly!
As a Plan Sponsor, you are invested in the retirement readiness of investors in your plan. As your advisor, we are invested in helping you communicate crucial information about investment best practices to your participants when it matters. We develop timely materials to help you educate your employees and help guide them towards informed decision-making and away from reactionary choices with potentially negative consequences to the individual and the plan. Please don’t hesitate to reach out to us for guidance and resources to help ensure that market volatility is properly approached by your workforce!
*Source: Wilshire Compass-reflects S&P 500 Index returns.
Voya Financial’s “Weathering the Storm: Reacting to the Current Financial Climate” and “11 Ways to Keep Your Cool in a Crazy Market” Handouts, both from 2019.
Diversification, asset allocation, and dollar cost averaging can’t guarantee a profit or eliminate the possibility of a loss. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.
Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Global Retirement Partners, a registered investment advisor and separate entity from LPL Financial.
This document is intended to be educational in nature and is not intended to be taken as a recommendation, authoritative guidance or tax or legal advice.