Market Panic: The Psychology of Staying the Course and Remaining Calm

This morning, while writing my newsletter about how discipline is actually freedom, I noticed the market volatility this week and thought it would be a good idea to revisit the topic of addressing client concerns. If you are not an advisor, but feeling panic as an investor, I hope this is helpful to you as well.

Nothing is really profound here. They are reminders, which we all need from time to time. It is all about countering our survival instincts in many cases.

As we all know, when there is panic or concern, there is a tendency to run with the herd, usually away from whatever is scaring us. Our brains are programmed like that. If the lion was coming at our ancestors thousands of years ago, our ancestors ran with the herd AWAY from the lion. Not towards it. The ones that ran towards the lion usually didn’t have any further opportunities at having offspring. ?

As we all know, addressing clients' concerns during market volatility requires empathy, clear communication, and evidence-based strategies. Here are several approaches advisors can use. Most of these you already know but are reminders.

Oh, these are suggestions and not scripts. I am not providing advice here and each situation is different yada yada yada…

1. Acknowledge Their Concerns and Provide Reassurance

It’s important that clients feel heard. Panic or concern can lead to herd behavior, which is a natural response. Historically, those who stay the course tend to fare better. Anytime someone has concerns, it is important they feel heard.

Perhaps remind clients that market volatility can be unsettling and it’s natural to feel concerned. Sometimes just talking through the concerns can be helpful as the client will realize that the monster is not as scary as they first thought. Also, perhaps remind the client that there is a long-term plan in place, and they have planned for this.

Research from the Journal of Financial Planning indicates that acknowledging client emotions and providing reassurance helps build trust and confidence during market downturns (Journal of Financial Planning, 2018). Not surprising. It’s also in all our books and programs but thought I would cite someone else here.

2. Educate About Market Cycles and Historical Performance

Historically, financial markets have shown resilience and growth despite periods of volatility. While short-term fluctuations can be unsettling, the long-term trend of the market has consistently been upward.

Remind clients that markets have experienced ups and downs but tend to recover and grow over the long term. Reviewing historical data can put the current situation in perspective. in alot of cases, it is about staying the course! For some clients, watching the market is actually the worst thing they can do. If it is stressing them out (or you as an investor), avoid looking at accounts or watching the news.

A study by Vanguard highlights that educating clients about historical market performance can help reduce anxiety and promote long-term investment strategies (Vanguard, 2020).

3. Revisit Financial Goals and Risk Tolerance

?Perhaps review clients' financial goals and risk tolerance to ensure their investment strategy still aligns with their objectives and comfort level. Adjusting their portfolio might be necessary based on this review.

4. Emphasize the Importance of Staying Invested

Similar to above, staying invested during market volatility is crucial for long-term financial success. Market fluctuations are a natural part of investing, and reacting impulsively to short-term downturns can lead to significant losses.

Perhaps remind clients that trying to time the market can lead to missed opportunities and lower returns.

Research from J.P. Morgan Asset Management shows that staying invested through market cycles typically results in better long-term returns compared to market timing (J.P. Morgan, 2019).

5. Provide Regular Updates and Maintain Open Communication

If appropriate, keep clients updated on market developments and how they might affect their portfolios. Who wants more hand-holding now? Who is a priority to engage during this time? When speaking to them, perhaps let them know they can reach out anytime with questions or concerns.

The Financial Analysts Journal emphasizes the importance of maintaining open communication and providing regular updates to clients during volatile periods to enhance trust and satisfaction (Financial Analysts Journal, 2016).

Not profound. Just a reminder that you are there with them is huge. You are right there with them if they are feeling stress.

I hope that helps serve as a little reminder. We will get through this. We have before and will again.

Visit me at www.CharlesChaffin.com for more or visit us to learn about our advisor programs, workshops, and consulting at www.PsychologyofFinancialPlanning.com .

References:

Journal of Financial Planning. (2018). The Emotional Impact of Market Volatility on Clients. Retrieved from [Journal of Financial Planning](https://www.onefpa.org/journal ).

Vanguard. (2020). The Importance of Historical Market Perspective. Retrieved from [Vanguard](https://www.vanguard.com ).

Financial Planning Association. (2017). The Role of Reassessing Risk Tolerance. Retrieved from [FPA](https://www.onefpa.org ).

?J.P. Morgan Asset Management. (2019). Guide to the Markets. Retrieved from [J.P. Morgan](https://www.jpmorgan.com ).

?CFA Institute. (2018). Understanding Market Volatility. Retrieved from [CFA Institute](https://www.cfainstitute.org ).

?Financial Analysts Journal. (2016). Communication Strategies During Market Volatility. Retrieved from [Financial Analysts Journal](https://www.cfainstitute.org ).