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Manage Emotions and Client Expectations in Volatile Markets

  • Beyond portfolio management, guidance from advisors helps clients maintain a long-term perspective, navigate short-term hurdles, and manage behavioral biases.
  • Emphasizing resilience and adaptability in portfolio construction strengthens clients’ financial security during unpredictable times.
  • Financial advisors can help investors avoid counterproductive behaviors and pursue their financial goals with confidence, especially in uncertain markets.
5 min read
Brie Williams profile picture
Head of Practice Management

In the world of investing, market uncertainty — driven by economic, geopolitical, and societal factors — is a constant reality. Unexpected events and market shifts can disrupt portfolios at any time, regardless of broader economic trends.

For investors trying to navigate an unpredictable economic landscape, financial advisors are invaluable guides. You play a critical role in emphasizing the importance of a balanced, long-term approach for clients while also helping them address short-term challenges and avoid overly reactive or rash investment decisions. Equally important is your ability to help investors realign strategies and adapt as conditions change.

Managing Client Expectations in Uncertain Markets

Investing is inherently a human endeavor, making an understanding of behavioral biases and sentiment crucial. While investors can’t completely eliminate these biases, increased self-awareness can help mitigate their impact.

Advisors play a vital role in helping clients channel their emotions productively within their investment strategies. By integrating principles of behavioral finance, you can support clients in maintaining investment discipline and reducing decision fatigue.

Risk of Trying to Time the Market

In times of uncertainty or volatility, you may find you have to spend more time actively managing client behavior and emotions, as investors may be tempted to deviate from their long-term plan or to try to time the market.

But history shows that market timing usually comes at a cost — it’s nearly impossible to predict precisely when the market will take a downturn or rebound.

Figure 1: Timing the Market Can Be Costly

Value of $1,000 Invested in the S&P 500 in 1927, 1960-2024

Setting Expectations Around Risk Perception

While market volatility can shape clients’ perceptions of risk, true risk assessment involves understanding financial goals, time horizon, and personal comfort with potential losses. Advisors can help clients manage risk more effectively by demonstrating how their portfolio aligns with long-term objectives, steering them away from reactions to short-term market fluctuations.

Figure 2: How Investors Feel About the Amount of Risk They Are Currently Taking

Risk Assessment Advised Investors Self-Directed Investors
I am taking the right amount of risk   77% 58%
I’m probably taking more risk than I should 9% 17%
I’m probably not taking enough risk 14% 25%

Source:  State Street Global Advisors Research Center, Influential Investor Segments Study, 2024. Q: Think about your ideal rate of return for your investment portfolio, which of the following best describes the amount of risk you are currently taking?

Actionable Strategies:

  • Keep the focus on what really matters: Encourage clients to limit exposures to background noise – such as financial news and social media – which can distract from long-term performance trends and lead to unnecessary stress.
  • Reframe losses in terms of long-term goals: Remind clients of their original objectives and show how short-term market movements have minimal impact on achieving these outcomes over time.
  • Employ decision-making tools: Use structured approaches, such as decision trees, scenario analysis, or cost-benefit analysis to help clients evaluate options objectively and assess various factors to provide clarity and reinforce a disciplined investment process.

Empower Clients to Maximize Their Investment Success

Whether clients view market downturns as opportunities to buy and hold or fall victim to chasing returns often depends on their advisor’s ability to steer conversations away from short-term performance metrics and toward decision-making that supports long-term goals.

In fact, 81% of investors report that their advisor bolstered their confidence during periods of rising inflation and market volatility.1 There are several areas where advisors can and often do add distinct value within the framework of a trusted relationship.

Actionable Strategies for Helping Clients:

  • Simplify Complex Market Dynamics: Uncertain market dynamics and unexpected events — such as rising interest rates, inflation, and geopolitical shifts — can make the investment landscape increasingly challenging for clients to navigate independently. Advisors can offer clarity and reassurance by distilling complexity into actionable insights, helping clients understand how their portfolios are built to be resilient across various scenarios.
  • Proactively Address Extraneous Information Affecting Investor Reasoning: In today’s fast-paced news cycle, clients are frequently bombarded with information that can lead to panic or doubt. Helping them feel more secure in their financial strategies takes more than logic alone. Advisors often combine vigilance with empathy to help ease clients’ concerns and to move them away from an emotionally reactive state to one where they can confidently tap back into their critical thinking skills.
  • Support Intentional Decision-Making Through Financial Planning Software: Technology is essential to fostering client engagement, connectivity, and transparency today.2 Financial planning software enables advisors and clients to collaboratively develop outcome-oriented plans, explore potential scenarios interactively, and dynamically monitor and adjust goals. This approach empowers clients to work incrementally towards their goals with greater confidence.

The Value of Building Resilient Investors

Today’s prolonged market uncertainty underscores the need for a deeper approach: strategic resilience.

Resilience is about more than enduring market movements or financial stress; it’s about enabling clients to adapt to uncertain market conditions with clarity and confidence, so that they can balance logic with emotion to make sound decisions under pressure.

Advisors can help build that resilience by helping clients understand both the risks they assume and their ability to bear those risks. It’s about empowering clients to make informed, purposeful choices that align with their risk tolerance, capacity, and financial objectives — even in uncertain or volatile markets.

What a Resilient Investor Looks Like:

  1. Understands that all investing carries risk, but avoiding it entirely means missing out on growth.
  2. Knows their personal risk tolerance, taking only the level of risk that aligns with their comfort and capacity.
  3. Can withstand market volatility and avoid panic-driven decisions during downturns, thereby sidestepping the crystallization of temporary losses.
  4. Adapts to changing conditions and recalibrates expectations, rather than fixating solely on staying the course.

The frontline of investor protection involves equipping clients to make decisions that safeguard both their immediate well-being and long-term goals. This resilience is cultivated not just through portfolio construction, but through ongoing conversations that build confidence, clarify risk, and reinforce each client’s commitment to their financial journey.

Resilience as a Strategic Asset

Cultivating this adaptable mindset allows advisors to provide value that extends far beyond returns. Fostering strategic resilience not only strengthens client relationships but also equips clients to more confidently navigate future challenges. This approach positions the advisor as an essential partner in their lives, enhancing the client’s ability to manage risk thoughtfully and stay prepared for whatever comes next.

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