The value of financial advice during volatile markets

By Kerry Hannon

MY HUSBAND AND I ARE DILIGENT SAVERS and planners. Yet when the latest bout of volatility was happening, I felt out of control. I wondered, “Would we still be able to meet all of our financial goals? Should we have let our retirement portfolios ride so high on equities last year? What could we do now?”

And then the phone rang. It was our financial advisor. She didn’t offer glib optimism. Instead, she calmly reminded us that we’d taken some of our retirement funds out of equities back in the fall and that we had plenty of cash on hand to help buffer the downturn. In my anxiety, I’d forgotten that. She then suggested some small steps we might take to rebalance and help protect our accounts moving forward and even mentioned some investments we might consider making while the markets were down.

As someone who writes about money for a living, I’m well aware that, historically, markets have bounced back from downturns. And yet, when markets get unpredictable, I find myself doubting that basic investing tenet. I’m not alone. “Difficult markets often lead to emotional decisions that might not be in your financial best interest,” says Marci McGregor, managing director and senior investment strategist in the Chief Investment Office for Merrill and Bank of America Private Bank. “That’s human nature.”

An informed and empathetic sounding board

It’s during times like these that an advisor’s calm and informed guidance can be most helpful. An advisor can help you create a long-term strategy for pursuing your goals—one that aligns with your risk tolerance, liquidity needs and time horizons, and that includes diversification so that your losses in a downturn might be minimized. You’ll still have questions—as I did—when volatility hits. But your advisor should be able to provide useful historical perspective and timely advice and guidance. 

Below are a few questions that may be top of mind for you the next time the markets dip, plus some insights on how working with an advisor could benefit you, depending on where you are on your road to retirement.

How should I handle market drops? Your advisor could reassure you that you have years ahead to recover from any losses in the accounts you’ve created for retirement and other long-term goals. But they should also review your short-term goals and discuss whether any adjustments need to be made to help keep you on track. They should walk you through all of your choices, as well as the fees and expenses involved, taking into consideration current market conditions and how much time you have to pursue those goals—things like saving for your children’s college, purchasing a home or covering caregiving costs for your parents. And they should help you consider whether you need to rebalance your investments to align more closely with your original asset allocation. If as a result of the volatility you realize that you’re not as comfortable with risk as you thought you were, your advisor can work with you to make adjustments that may help to further reduce the losses you might be experiencing. 

Are there opportunities for me to grow my assets? One of the biggest opportunities may come from maintaining your equity positions. Abandoning equities when the markets are down puts you at risk of missing a recovery, says McGregor. In addition to giving you that important historical perspective, your advisor will have access to the latest market research and may suggest new investment choices that may be in your best interest and that take advantage of lower stock prices.

Should I adjust my asset allocation? If you’re close to retirement, you may be tempted to get out of stocks. “But a too-conservative portfolio can be risky, too,” says McGregor. An advisor can show you how adjusting your asset allocation could affect your portfolio over time and help you to plan for upcoming expenses, such as the rising cost of health care. “In some cases, as you approach retirement, you may even want to increase risk on a calculated basis,” says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. You might consider shifting some of your fixed income to equities, for instance, if fixed income is offering low yields, as well as looking at dividend-paying investments.¹

Will I need to make some trade-offs? Depending on the extent of the volatility and its impact on your portfolio, you may have to consider working a little longer or putting off another goal, acknowledges Ben Storey, director, Retirement Research & Insights at Bank of America. “But an advisor can help you find other ways to adjust. You might talk about putting off the purchase of a second home, for instance, so that you can still retire when you want to.”

Do I have enough cash on hand? Plummeting markets can be especially nerve-wracking if you’re relying on funds from your retirement accounts to cover living expenses. “Your advisor can help you revisit your budget to see which non-necessities you can trim to free up income,” Storey says. If you do need more cash for a large expense or to pay down high-interest debt, your advisor might suggest working with a bank to consider low-cost borrowing options so that you don’t have to withdraw assets in a down market.

How can I protect my savings? In addition to working with you to evaluate and possibly adjust your asset allocation to help minimize losses and provide a potential income stream, your advisor can keep you up to date on rule changes. For instance, in 2019 the SECURE Act delayed the age at which people must begin taking required minimum distributions (RMDs) from an IRA or workplace retirement plan account to age 72, from 70½.

Preparing for the next downturn

As concerned as my husband and I were about our finances during the latest bout of volatility, we felt reassured when our advisor showed us we were prepared to weather this downturn. But that was only true because of the smart decisions we’d made together with our advisor over the years as we established, reviewed and adjusted our investments to match our changing needs and life circumstances. It’s a process we plan to continue so that we can be ready when the next downturn comes.

Kerry Hannon is the author of numerous best-selling personal finance and retirement books. Her work has appeared in The New York Times, USA Today, AARP Magazine and The Wall Street Journal, among many other publications.