Financial “Comfort Care” During Market VolatilitySheaff Brock Institutional
Comfort care, in geriatrics, involves offering attention to the psychological and spiritual needs of the patient and the patient’s family. These days, it seems, financial advisors are being called upon to provide comfort care to their investors, many of whom are suffering from market volatility-induced manifestations of the investor fear factor. It’s no exaggeration to say that advisors today serve as our industry’s “financial health psychologists,” understanding how psychological, behavioral, and cultural factors contribute to our clients’ financial health—or illness!
“The market is as much about sentiment and psychology as it is earnings and profits,” Avi Salzman stated in Barron’s. As Salzman observed the “tit-for-tat proposals” of tariffs between China and the U.S., he realized that the fear factor was going up regarding a potential trade war. Meanwhile, stocks were also being rattled by an anemic jobs report. Salzman is reminded, he says, of “the importance of perception versus what is reality.” No tariffs have actually been approved or implemented, but that’s irrelevant. It’s perception rather than reality that drives stock market volatility, he reminds readers.
Certainly current volatility seems high, concedes Sheaff Brock Managing Director Dave Gilreath. Since the start of this year, we’ve seen 25-30 trading days with a greater than 1% price move in the S&P 500 Index, compared to only eight in all of last year. (2017 was an anomaly in its own right, since the normal annual volatility average is 48 days out of the 250 trading days in a year.)
While volatility in itself might be considered the normal “cover charge” for participation in the stock market, it’s important for advisors to help clients differentiate between market risk and market volatility. Risk, Gilreath explains, consists in not knowing what you’re doing, and investing in areas you know nothing about; one hallmark of “the Sheaff Brock way,” he emphasizes, is investing only within the firm’s sphere of competence.
Financial “comfort care” is based on helping clients put current events—and current market volatility—into broader perspective. Geopolitics has always seemed frightening to investors, Gilreath continues—the Cold War was tremendously scary to investors in its time. If you think about it, he says, in comparison with early eras, geopolitics are relatively mild today, with more global trade going on, more democracies in existence, and fewer wars.
Riva Gold, writing in the Wall Street Journal, appears to agree that the current market volatility, combined with the market fear response advisors are seeing in their clients, might translate into an encouraging contrarian signal, a sort of “sheep-in-wolf’s clothing” effect.
Meanwhile, advisors might “be advised” to continue offering comfort care to those suffering from investor fear factors that can negatively affect their long term financial health!