The third, and perhaps most important, step is to reinforce. Coaching, guiding, and running simulations help, but nothing prepares clients for market shocks better than training. And much like emergency-response drills, mental preparation of what to expect and how to react requires reinforcement. So when the real thing happens, you can prevent costly derailments. It can also help clients stay calm, maintain a long-term perspective, and see opportunity in a situation that could otherwise be clouded by emotional stress. They’ll be better prepared to buy into deliberation when the prevailing temptation is to do the exact opposite. And in doing so, they’ll position their portfolios for a faster recovery.
With the financial plan as the anchor, advice that preempts, prepares, and reinforces can pay off both for your clients and for you.
* High-quality fixed income securities are those rated the equivalent of A3 or better by Moody’s or A– or better by Standard & Poor’s or Fitch.
** Investment-grade bonds are those whose credit quality is considered to be among the highest by independent bond-rating agencies.
This article was written by Francis M. Kinniry is a principal in Vanguard Investment Strategy Group, whose primary responsibilities are capital market research, portfolio design, development and implementation of customized investment solutions, investment market commentary, and research.