We are living in uncertain times
It is an understatement to say that we are currently in uncertain times. The outcome of the Brexit negotiations is uncertain, we don’t know the outcome of Trump’s trade war with China and the financial markets are up and down like a yo-yo.
When markets are volatile, what advice do we give our clients? It is easy to hide under the umbrella that “it will all turn out all right in the long run”, but this is a disservice to our clients. We owe it to our clients to keep them up to date and informed about the effect of world events on their personal finances.
Back to basics
At times like this I find comfort in going back to basics because often the simplest things can make a big difference. There are three basic things we can do to re-assure clients:
- make sure their income requirements are delivered
- check the investment strategy reflects their risk profile
- review their longer-term plans to make sure they are still on track to deliver the desired outcomes.
If there is a common theme to the above it is; “if the pensions and investments are set up correctly in the first place, they should be able to sail safely through any storms that may arise”.
In practice this means managing the sequence of returns risk when income is being taken, making sure investments are well diversified and undue risks are not taken and finally, the long-term plans have flexible enough to adopt to changing circumstances.
Status quo bias
It is all well and good to argue that despite the current volatility, financial markets will produce positive returns in the future and clients will have good outcomes, but I wonder if this falls into trap of ‘status quo bias’. This is a preference for the current state of affairs and a reluctance to accept that the future may turn out very different from the past.
At the beginning of 2018 I was asking if there was going to be trouble ahead with Brexit and Trump and if so, what we were going to do about. We are in troubled times, but I don’t see anybody coming up with suggestions about how to deal with it.
In a few months’ time we may look back and say the current troubles were a storm in a tea cup or we might see things going from bad to worse.
I don’t know how things will turn out, but I sense there might be more trouble ahead and this thought should encourage advisers and their clients to consider if retirement plans and solutions need changing to reflect changing circumstances.