Market volatility is unnerving - even the most confident investors can be unsettled by it. And ongoing concerns about the war in Ukraine, and its impact on food and energy prices, are likely to contribute to more volatility in the short to medium term.

Here we share some reassurance messages which you may find useful for client conversations. It’s also an opportunity for you to remind clients about what you’re doing to help mitigate the impact of volatility and inflation on their portfolios, and demonstrate the value of your advice. 

1. Highlight the benefits of investing over the long term

Market volatility is unnerving and different opinions on what the future holds can confuse matters more. But it’s important for your clients to understand that volatility is part and parcel of investing over the long term. When it comes to investing “slow and steady” is more likely to win the investing race. But this can be a difficult concept for some people to accept.

“Time in the market” is another favourite saying among financial professionals, which your clients could argue is easy to say when things are going wrong. But if you can encourage them to take a step back and look at market events in context, you can show why it’s consistently the advice you give.

Source: abrdn. FTSE® 100 Index, total return, with dividends reinvested, but no further payments made, from 30 June 1992 to 30 June 2022. Past performance is not a guide to future performance. In addition, returns don’t include the impact of charges or inflation, which could further reduce what you get back.

The chart above shows major market events between 1992 and 2022, and tracks the growth of a £10,000 investment over that time. Over the last 30 years, there have been plenty of market falls and crashes, as well as rises and bubbles. But one of the main takeaways here is that, over the long term, investments have the potential to grow in value significantly.

Another really good thing about looking at all of the years of activity at once is that it puts things into perspective. For example, 2016 and 2017 were billed as turbulent years for markets. But if you look at the impact of the Brexit referendum and the US Presidential election in relation to everything else that’s happened in recent history, it seems far less momentous than it would if we looked at the impact of those events in isolation.

2. Encourage them to remain calm

It can be easy for clients to panic when they see the value of their investments fall – it’s a very normal reaction. So encouraging them to keep their emotions in check is important.

You can explain that if they give way to fear and sell their investments, they’re likely to be selling after markets have already fallen and, importantly, before they rise again. That means they’re locking in losses and will potentially have less money than someone who kept their composure, and their money invested.

On the other hand, if markets are doing really well, your clients might expect you to encourage them to buy into them. But you know that if they do that, they could end up buying at the top of the market, and their new investments could fall in value soon after.

This illustrates why trying to time the markets can be a dangerous game, and catching the top and bottom end of things is extremely hard.

3. Encourage them to focus on what you and they can control

Periods of market volatility are a valuable reminder of the importance of diversifying investments – and a clear justification of your reasons for spreading your clients’ money across different types of investments and geographical locations.

You can show that if they’re investing in only one or two of these then they’re exposing themselves to quite a degree of risk. But diversifying across investments and countries can help provide a much better balance between risk and return. This is a very real illustration of the value your advice can bring.

Nowadays, any important event, wherever it happens in the world, may have an effect on financial markets. Your clients can be reassured that you, and any investment professionals you work with, are actively monitoring their portfolios. This means that you can make tactical changes to take advantage of the opportunities presented by changing market conditions.

The information here is based on our understanding in July 2022. The information in this blog should not be regarded as financial advice. The value of your clients’ investments can go down as well as up, and may be worth less than was paid in.