When Panic Sets in, How One Financial Adviser Talks Clients Off the Ledge
Coronavirus panic is real, and it extends beyond health concerns to people's financial lives. But drastic measures can be disastrous.
For the majority of the American population the coronavirus pandemic rates as one of the most frightening times of their lives. We are fighting an invisible enemy. There is no vaccine or cure, and regardless of how cautious you may be, you can still get really sick and die. No wonder many of us are traumatized. We have lost control of our lives and well-being.
In addition to the physical threat, the social and financial ramifications are far-reaching. Things we all took for granted are now taboo – shaking hands, hugging a friend, and grabbing a coffee hardly scratch the surface. Socially, we’ll be fine. A nod may replace a handshake for the foreseeable future. The financial ramifications are much more serious.
Many people are hanging on by a thread. People have been furloughed or fired. If they lived paycheck to paycheck, they are in financial trouble.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Financial guidance when it is most needed
Fortunately, most of my clients are not in danger of losing their homes, or going to bed hungry. They are still worried, though, especially if they are in or near retirement. They worked hard for their money and don’t like to see their portfolios go down. I understand that because I also work hard for my money and don’t like to see my portfolio go down either.
Many of my clients were with our firm in 2008, so we have a history together. They can call me after-hours or on weekends, if need be. The market has had a great run the last several years, and those who stayed invested and bought quality investments have done well.
I understand the desire to preserve what you have. That being said, if you are working with a financial professional, call or email them if they haven’t already called you. Just because their office may be closed does not mean the stock market is. These days watching the market is like watching a yo-yo. It bounces up on good news and goes down on bad. Generally, the news is health-related — unlike in 2008, which was truly a financial crisis. Our current situation started as a health crisis, which has also become a financial crisis. Painful as it is, hopefully, as a nation, we will survive stronger.
We are going through a crisis unlike any other time in our lives. The Greatest Generation experienced World War II, but not a widespread pandemic like this. For the other generations (boomers, Gen X-ers and millennials), they haven’t experienced anything nearly as scary as this tragic time. That is why it is easy to panic.
What I tell my clients
As scary as this is, if we remain healthy by taking precautions and social distancing, this pandemic will run its course. We were riding high and the economy seemed to be unstoppable, but we always knew a recession was going to take place at some point. We have been in the longest bull market in history. No one expected a pandemic to be the straw that broke the camel’s back.
If you are a person with a long-enough time horizon, riding out the storm is most likely the right thing to do. Older clients usually have a larger amount of cash reserves and generally more conservative investments. The shorter your investment time horizon, the more liquid you should be.
When clients frantically call and tell me to sell, I explain that right now they only have a “paper loss.” In other words, when the market stabilizes and ultimately rebounds, that loss will be erased. However, if they sell when the market is down, the paper loss becomes a real loss. A well-thought-out investment liquidation strategy may make sense and is generally already in place for those who need an income stream. A panic knee-jerk reaction rarely makes sense.
Helping those who insist on selling
Almost every financial planner probably has one client who calls and demands to sell everything. As a Certified Financial Planner and Certified Financial Transitionist with many years of experience, I can refocus most people. But if someone calls and is insistent on liquidating their entire portfolio, there is one last-ditch effort I use to talk them “off the ledge.”
I very politely ask, “If you feel so strongly about going against my advice, can you please put in writing what you would like me to do on your behalf? I want to make sure I have proper documentation that this is your own decision to sell.”
Believe it or not, most never provide written instructions after that conversation. Maybe they needed a sounding board to vent their fears and frustrations, which are very real.
The psychology of investing
Time and again, the industry has seen that those who invest with their emotions, and not their heads, can make catastrophic mistakes with their retirement portfolios. Our profession has created a term called “behavioral finance,” which shows how what we think as humans can influence our financial decisions, sometimes leading us to have the wrong behaviors at the worst possible times.
If you need help getting talked off the ledge, reach out to a financial planner. That way you have someone to help protect yourself from yourself in times like these.
Please be rational and do not panic. Most importantly, stay safe and healthy!
Disclaimer
Securities and Advisory Services offered through Cadaret, Grant & Co., Inc., a Registered Investment Adviser and Member FINRA/SIPC. HMS Financial Group and Cadaret, Grant & Co., Inc. are separate entities.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
Barbara Shapiro is the President of HMS Financial Group located in Dedham, Mass. She is a CFP®, Certified Divorce Financial Analyst and a Financial Transitionist®. She is also co-author of "He Said: She Said: A Practical Guide to Finance and Money During Divorce." Her firm specializes in comprehensive financial planning with a subspecialty in divorce that assists clients' transition from marriage to independence with peace of mind and confidence. Learn more at HMS-Financial.com.
-
Georgia Has a New Income Tax Rate for 2024
Tax Cuts Georgians now have a tax package containing income tax cuts, childcare relief, and potential property tax caps.
By Kelley R. Taylor Published
-
Why Spotify Stock Is Soaring After Q1 Earnings
Spotify beat expectations for the first quarter and its stock is notably higher following the report. Here's why.
By Joey Solitro Published
-
Four Tips to Make Your Sales Presentation a Winner
Being prepared and not being boring can go a long way toward persuading a potential customer to buy into what you’re offering.
By H. Dennis Beaver, Esq. Published
-
Pros and Cons of Waiting Until 70 to Claim Social Security
Waiting until 70 to file for Social Security benefits comes with a higher check, but there could be financial consequences to consider for you and your family.
By Patrick M. Simasko, J.D. Published
-
Now Could Be Time for Private Investors to Make Their Mark
The venture capital crunch may be easing, but it isn't over yet. That means there could be direct investment opportunities for private deal investors.
By Thomas Ruggie, ChFC®, CFP® Published
-
How to Stop Boredom From Ruining Your Happy Retirement
Retirees who explore new interests and have an active social life are more likely to find joy — and even greatness — in the newfound freedom of retirement.
By Richard P. Himmer, PhD Published
-
The Life-or-Death Answers We Owe Our Loved Ones
How our life ends isn’t always up to us, but that question too often must be answered by loved ones and health care workers who don’t know what we would want.
By Joel Theisen, RN Published
-
Hot Tips for Home Buyers and Sellers Right Now
Real estate looks to be especially hopping this spring, thanks to pent-up demand and buyers adjusting to higher mortgage rates. Here’s how you can prepare.
By Pam Krueger Published
-
Is 100 the New 70?
Eating well, exercising, getting plenty of sleep and managing chronic stress can help make you a SuperAger. Funding that long life requires longevity literacy.
By Phil Wright, Certified Fund Specialist Published
-
Nine Lessons to Be Learned From the Hilton Family Trust Contest
Disclaimers, good communication, post-marital agreements and more could help avoid conflict in a family after the owners of a wealthy estate pass away.
By John M. Goralka Published