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Volatility Still Exists

A couple of weeks ago, an advisor asked us a very specific (and very timely) question:

“Stocks are at an all-time high, bonds are at an all-time high, we’re in the longest Bull market in history—how do I remind my clients that volatility still exists?”

[Cue the first week of February.]

As of Thursday, the Dow closed 10.4% below its January 26, 2018 record high of 26,616.71, entering “correction” territory for the first time since February 2016. January gains were erased in less than 48 hours. Volatility knocks.

It’s been easy for investors to take the buoyancy of this market for granted. Those of us that remember the Dot Com Bust and 2008 financial crisis had a decade (or two) of buffer from those losses. But it’s important to keep in mind that, even in good economies, a straight line is rare, perhaps even unhealthy.

It’s only natural that the market would experience a correction, but for many, this correction seemed like a rude awakening. The two biggest robo advisors on the market experienced site outages that kept users out of their accounts. But this also kind of makes sense: robo advisors didn’t hit the scene until after the recession in 2008. In their existence, they don’t have much experience talking down a client, or giving reassurances, or preparing for the worst. Their only real taste of volatility was Brexit, and even that wasn’t handled with the level of care you’d expect for a huge sociopolitical event.

This week, it’s no wonder that they were unprepared, and it’s also no wonder that their customers were left in the lurch. These platforms may have heralded a new wave of fintech innovation, but tech can’t replace empathy.

Not to be too hard on Wealthfront or Betterment—it’s worth mentioning that some human advisors were also blindsided by the response from their clients. Suddenly, advisors had to flex a muscle that had gone unused with clients who didn’t know what the next day, or the next day, would bring.

The group of advisors most equipped to handle this unexpected flux of volatility? Advisors that adopted the risk-first approach and have been talking about the importance of fearless investing all along.

If there’s a lesson to be learned, it’s that volatility does still exist. That risk is, and always has been, very real. This week gave us a rare opportunity to see the power of the Risk Number® in action and witness the impact it’s making for advisors and their clients. Some of the greatest compliments we’ve received as a company came from our advisors during what should’ve been a very difficult time.

The fearless investing movement is working, and this proves that when advisors aren’t afraid to talk about risk, their clients aren’t afraid to make the right decisions. Seeing our mission in action only gives us more confidence as we head deeper into 2018.

At the T3 Conference this week, we predicted that 2018 is going to be the “Year of the Advisor,” and the volatility we experienced this week only confirms it. There is no group better equipped, better qualified, or better suited to these situations than advisors. What an opportunity you have to demonstrate your value to your clients!

Volatility may be alive and well, but it’s no match for fearless investing.

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