A recent survey by the finance site NerdWallet found the financial advisers aren’t sweating a stock market meltdown or a recession. But the survey found that an assortment of client responses to markets worry them a great deal. Those responses include:
Seeking short-term comfort is a natural reaction when you see your portfolio take a sharp turn south. But panic sellers risk missing out on gains when a down cycle for stocks reverses direction. Fidelity found investors who bailed during the 2008 financial crisis lost an average of nearly 7 percent. Those who stayed the course saw their average balances rise roughly 22 percent.
Savers frozen by fear
It’s the continual addition of money to an account (dollar-cost averaging) that keeps the wheels of compounding rolling and smooths out long-term returns. But jittery investors are more apt to abandon this key part of the wealth-building equation.
Daredevils who “buy low” no matter what
In contrast to those seeking cover in cash are those driven to take excessive risks by blindly buying stocks that have dropped. Buying based solely on price (and without knowledge of a company’s intrinsic value) is taking an uncalculated risk — no matter what the market conditions.
Clients who think “this time it’s different”
The danger of recency bias — giving more weight to what has happened recently than to how things have gone historically — is that it can drive investors to abandon strategies that were put in place during calmer times.
People focusing on the wrong metrics
Worrying about monthly and quarterly performance is a distraction from what really matters: how on-target you are to reach your long-term goals. If you must check up on your returns, compare the performance of your investments with the appropriate benchmark, and make sure your allocation is aligned with goals and risk tolerance.