2025 has been anything but calm. Nerve-racking headlines on tariffs, wars, and political tensions have caused roller-coaster gyrations in financial markets and left many wealth management clients feeling squeamish about their portfolios.
As a financial advisor, I typically am successful talking nervous clients out of making impulsive investment decisions, but there are always a few who cannot stomach the volatility. Despite my best efforts, no words of reassurance can assuage their apprehension.
As every advisor knows, liquidating one’s portfolio after a drop in the market is one of the worst financial decisions an investor can make. One bad decision may set a client back years financially. As a way to protect these nervous investors from liquidating their portfolios at the worst possible time, I have developed a system to allow clients to “panic prudently.” This approach is akin to setting guardrails on their portfolios. It allows them to act on their impulses without derailing their financial plans. Below are five strategies I have used with nervous clients during tumultuous times:
Pause dollar-cost averaging: Dollar-cost averaging, or the strategy of automatically adding money to one’s portfolio at regular intervals, is one of the best ways to seamlessly grow wealth over time. Putting a temporary pause on this strategy, and suggesting you revisit it with clients in a month, may help appease them and stop them from making more drastic decisions within their portfolios. Suggesting that the clients use these dollars to bolster their emergency funds until market volatility subsides can prevent them from making rash decisions.
Stop reinvesting dividends and income payments: Most of my clients have their dividends and interest payments from stocks and bonds reinvested back into their holdings. This helps compounding work its magic and, over time, allows their wealth to grow exponentially.
If a client insists on getting out of the market, I suggest that we start by not reinvesting their dividends and interest payments for a few weeks. Similar to the previous point, it helps bolster the client’s cash reserves. Refraining from investing into a down market appeases some clients and simultaneously allows them to add to their cash position in case we enter a prolonged bear market. From my perspective, this approach prevents these clients from selling funds after a big drop, which essentially keeps their strategies intact.
Rebalance to a more conservative allocation: The next line of defense is to offer to rebalance a client’s portfolio to a more conservative allocation. Although the logical thing to do after a market decline is to add money to stocks, a nervous client’s emotions may be stronger than pure logic. Taking a little bit of money out of stocks and reallocating it to fixed income can help minimize the potential damage a client could inflict by liquidating his or her entire portfolio. For clients who are nervous even with that strategy, the advisor can offer to move funds out of investment-grade bonds, which may have appreciated in value after a market decline, into a more conservative money-market account that has no volatility.
Divest proportionally: If all the aforementioned strategies fail, and a client insists on selling a portion of the portfolio, you should insist that it’s done proportionally based on their allocation. Therefore, if the client has 60% in stocks and 40% in bonds, the portfolio should maintain the same allocation after liquidating some funds. Timing the market is one of the worst financial mistakes investors can make, and an advisor should do everything in their power to dissuade a client from selling the biggest losers (i.e. stocks) in this market. Maintaining a well-diversified portfolio helps prevent the client from timing which investments or asset classes to sell. The client will be well positioned to participate in the inevitable market rebound, regardless of which area of the market is the first to rebound, given his or her broad exposure to various asset classes.
Sleep on it: Whatever clients decide to do, I always suggest that they sleep on it before implementing. I suggest they call me back the next day (or preferably after a weekend) to allow them time to contemplate the conversation, as well as the pros and cons of making any tweaks within their portfolio. It is amazing what a decent night’s sleep and some time to think things over can do for even the most anxious investor. It is hard to make smart decisions in any situation in life where you are stressed out and emotional. Simply taking a day or two to think things over can make all the difference.
Ultimately, even the worst market downturns are temporary. The key is being able to wait out the storm until the market rebounds and a calmer environment ensues. The aforementioned strategies are effective ways of delaying clients from making impulsive decisions, while validating their concerns, and sticking with their core strategies. Preventing clients from sabotaging their finances is one of the most important skills for every advisor in today’s market environment.
Jonathan I. Shenkman, AIF, is the president and chief investment officer of ParkBridge Wealth Management and is based in New York. His practice addresses all aspects of clients’ retirement planning, including collaborating with other trusted advisors to help facilitate and manage various tax, estate, and financial planning strategies to achieve the clients’ goals.
