The stock market took nervous investors on another bumpy ride today and financial advisors are feeling the heat.
But even though markets were plummeting and soaring like a rudderless rocket, some who went through previous freefalls want to remind people that what goes down has always come back up.
One industry veteran of the historic 1987 crash said it is important to relay a sense of perspective to clients. Playing the market means dealing with the inevitable bulls and bears, said Bryce Sanders, former financial advisor and president of Perceptive Business Solutions, which trains advisors.
“The four most dangerous words on Wall Street are ‘This time it’s different,’ ” Sanders said today.
The lessons of 1987 and 2008 should be instructive to current investors, he added. The September 2008 market collapse had the International Monetary Fund warning that the world’s financial system stood at “the brink of systemic meltdown.”
Instead, the markets recovered fairly steadily over the ensuing years and patient, poised investors made their money back, and then some.
When dealing with nervous clients, Sanders urged advisors to be visible, and to even reach out if they suspect a particularly precarious situation.
"They need you now, even if it's only to listen to them," he said, adding that advisors should expect emotion and to be patient.
A key point is the fundamentals of the companies that people invested in, Sanders explained. If the company foundation is good, there’s no reason to abandon ship.
“You bought into companies for a very specific reason,” Sanders noted. “If a stock is down 4 percent, does that mean the management of the company became 4 percent stupider over the past week? No.”
Craig Lemoine, a certified financial planner and professor at The American College, said this morning’s wild ride is a perfect example of why small savers need access to an investment professional.
“If you checked the market at 9:30 and you saw everything was down 8 percent and you hit sell, and by noon, it had gone back up, I mean how heartbreaking would that be?” Lemoine said.
The Dow Jones Industrial Average entered correction territory Friday, defined as a decline of 10 percent from a recent peak. For the week, the Dow fell more than 1,000 points, its worst five-day run since 2011.
Signs of a slowdown in China, the world's second-largest economy, are being blamed for the hit to stocks, bonds, currencies and commodities. Investors were further rattled when Chinese authorities eschewed fresh steps to stem the selloff over the weekend.
In today’s trading, the Dow was down 450 points, or 2.7 percent. The Standard & Poor's 500 index dropped about 60 points, or 3.1 percent, while the NASDAQ was down 2.9 percent.
On Oct. 19, 1987, the Dow fell 508 points, which represented nearly 23 percent of the market. The event became known as “Black Monday,” and investors were blindsided by the losses, Sanders recalled.
“People had never seen a stock market move like that before,” he added. “The volatility of a 100-point drop when the market is at 7,000 is entirely different from a 100-point drop when the market is at 17,000.”
One difference then was the payoff promise of 20- and 30-year U.S. Treasury Bonds, Sanders said. Investors were able to lock in double-digits rates of return for the long term.
“The bond market provided a very attractive alternative to investing in the stock market, so therefore money got out of the stock market and got into the bond market,” he recalled. “That situation isn’t around today.”
The takeaway from the market downturn is how small the world has become, Lemoine said. China’s difficulty with its currency and ability to import goods, for example, affects the entire world.
“The globalized world we live in, the U.S. markets don’t necessarily provide you with a safe haven,” he said. “You can see this global integration of stock markets.”
Shrewd investor will realize the potential in the current market, Lemoine said, and be preparing to participate in the inevitable rebound.
“The accumulator should view this as a sale,” he said. “A dollar today is going to buy 13 percent more than it would last week. … Today is positive. Today is an opportunity.”
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].
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