How Good Advisers Manage Risk in Challenging Markets
They understand the difference between what might be real challenges to an investor's strategy and fear brought on by market volatility.
Why are down markets challenging? And do they always need to be?
A portfolio manager knows every market has down days, and every portfolio will at times underperform. The real challenge comes when an investor’s investing strategy is consistently out of sync with their long-term goals.
For example, if the S&P 500 plunges 1,000 points (as it has done multiple times recently), or a hype bubble pops, it shouldn’t matter for a conservative portfolio made to protect against downside risk. If the strategy does its job, all is well. If not, portfolio managers review the underlying facts and decide if we should adjust.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free 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.
Disciplined portfolio managers don’t try to outsmart the market. We rely on data to keep the right level of risk in our investment strategies, based on what the aim is for those strategies. And managing risk is the name of the game.
Hope and fear are not investment strategies
In a perfect world, people would make investment decisions rooted in data and discipline. But we are human, and people do make choices with their money based on emotions like hope and fear.
The problem is that hope and fear are not investment strategies. A concentrated stock position or an investment into a hyped-up asset on a tip from a friend is like saying, “I hope I’m right.”
And even if their hopes are well-founded, history shows that investors are not great at sticking to those hopes. Dalbar’s latest Quantitative Analysis of Investor Behavior finds that investors hold on to a portfolio for an average of only 3.7 years before switching.
That is not enough time to achieve long-term financial goals. This is where a disciplined adviser or investment manager can make a meaningful difference.
Interested in more information for financial professionals? Sign up for Kiplinger’s new twice-monthly free newsletter, Adviser Angle.
The most successful advisers we work with at NewSquare Capital, an investment advisory firm based in Newtown Square, Pa., are the ones who can consistently steer their clients back to an investing strategy based on facts.
When fear or greed causes investors to lose sight of their long-term plan, sound advisers bring them back to earth by asking, Has anything really changed from your original, well-thought-out investment approach?
Moments of clarity
I have seen this question lead to moments of clarity as the investor realizes that there is more to investing than getting wrapped up in the latest market story, crossing their fingers and hoping for the best. From there, constructive conversations about appropriate strategy and methodology can take place.
Good advisers, in our experience, understand the differences between what might be real challenges to an investor’s strategy or just fear brought on by market volatility. The latter is natural.
A fact-based strategy doesn’t discount investor emotion outright. Instead, the goal is to take a step back and gently set those emotions aside, only weaving them into the plan if they are truly warranted — which is uncommon during fearful periods of volatility like now.
Related Content
- Stick to the Plan: Don't Panic During Economic Uncertainty
- During Market Volatility, Avoid These Common Investing Pitfalls
- Three Keys to Logical Investing When Markets Are Volatile
- Market Volatility Tempting You to Get Out? Read This First
- Four Historical Patterns in the Markets for Investors to Know
-
Stocks Extend Losing Streak After Fed Minutes: Stock Market TodayThe Santa Claus Rally is officially at risk after the S&P 500's third straight loss.
-
What Bilt Cardholders Need to Know as Wells Fargo Exits the ProgramA major shake-up in the Bilt Rewards program could affect your credit card, rent rewards and points strategy heading into 2026.
-
3 Major Changes to the Charitable Deduction in 2026Tax Breaks About 144 million Americans might qualify for the 2026 universal charity deduction, while high earners face new IRS limits. Here's what to know.
-
Stocks Extend Losing Streak After Fed Minutes: Stock Market Today
The Santa Claus Rally is officially at risk after the S&P 500's third straight loss.
-
Where to Stash Cash as Yields Fall, According to AdvisersYour best options depend on how soon you'll need the money and your tolerance for risk.
-
Control vs Protection Quiz: Which Trust Do You Need?Quiz Take this simple quiz to discover whether a revocable or irrevocable trust should be the cornerstone of your estate plan.
-
Best Mutual Funds to Invest In for 2026The best mutual funds will capitalize on new trends expected to emerge in the new year, all while offering low costs and solid management.
-
If You'd Put $1,000 Into 3M Stock 20 Years Ago, Here's What You'd Have TodayMMM stock has been a pit of despair for truly long-term shareholders.
-
I'm a Financial Pro: You Really Can Make New Year's Money Resolutions That Stick (and Just Smile as Quitter's Day Goes By)The secret to keeping your New Year's financial resolutions? Just make your savings and retirement contributions 100% automatic.
-
Domestic vs Offshore Asset Protection Trusts: A Basic Guide From an AttorneyLearn the difference between domestic asset protection trusts and foreign or offshore asset protection trusts to help you decide what might work best for you.
-
As We Age, Embracing Our Own Self-Doubt Can Be a Gift: A Cautionary Tale About Elder Financial AbuseAn aging couple hired a company that illegally required large deposits, and then they decided to stick with the company even after an employee stole from them.
