If you ask investment advisors for a list of their most important investment tenets, odds are that they'll include a statement along the lines of "Maintain a disciplined investment approach." Translation: don't get spooked by market volatility.Unfortunately, individual investors rarely heed that advice. Indeed, many studies show that investors often panic in the face of market uncertainty and sell at exactly the point when they should be buying. The news media certainly does its part to stir up anxiety about the markets. After all, "Market Crash of 2008!!!" sells more headlines than "Stay the course." This barrage of panic-inducing messages makes it that much harder for investors to remain calm and focused on their investment plan. Investors need to be reminded again and again that during times of volatility, the best course of action is to stick to a well-designed game plan. It's surprising, then, how few brokerage firms seem to drive this point home. As of last week, of the 20-odd brokerage websites that we routinely track, only five had anything on their homepages discussing market volatility. Worse, only three firms - Schwab, Fidelity, and Merrill Lynch - actually emailed us about the issue. Each took a different approach: Schwab's email was more of a marketing message promoting their portfolio planning and managed accounts; Fidelity's email was really an issue of their weekly e-newsletter and focused more on the January market swoon; and the Merrill email was actually a Blackrock publication forwarded directly from our broker - that is, it was not a Merrill-branded email. What should firms do to combat hysteria and keep their clients focused on their long-term objectives? The answer is simple: Create a message that clearly states the need for some long-term perspective and repeat it often and through every channel. It's said in sales and marketing circles that people need to be exposed to a message something like seven times before they remember it. Thus, firms need to get this message out multiple times and in multiple ways.
With that in mind, you should use all of the technology available to do so:
- Send emails focused specifically on this topic
- Include messages and inserts in the monthly statements
- Have a recording from the company's CIO play at call centers instead of hold musak
- For full-service firms, craft an email that your brokerage force can send to their clients and provide links to other information
Again, the point is to repeat your message so that it sticks.
There is a Chicken Little in all of us - especially when our money is concerned - and right now he could probably use a little dose of Valium, courtesy of the experts in the brokerage industry. And even if the sky IS falling, it would be helpful to remind investors that it doesn't stay down forever.There is a Chicken Little in all of us - especially when our money is concerned - and right now he could probably use a little dose of Valium, courtesy of the experts in the brokerage industry.