What to Expect from Your Financial Advisor in Bear Markets

By Ryan Glinn, CFP®, MBA, CLTC®
W3 Wealth Management

YOUNGSTOWN, Ohio – U.S. equity markets entered bear market territory in June for the first time since the COVID pandemic in early 2020. A bear market is signified by a decline of 20% or more from its peak. What should you expect from your advisor when volatile times like this occur?

Rather than jump to the more nuanced expectations, let’s start with the basics. Communication lines should be open. It’s more than reasonable that a phone call or email be returned within 24-48 hours. Your advisor should be available to you if you have questions or concerns.

A regular meeting frequency to review accounts and financial plans is common in the industry. The advisory firm should be proactively reaching out to set these meetings up. They usually occur on an annual, semi-annual, or quarterly basis. If you are meeting regularly with your advisor, you’ll inevitably have meetings during both good times and bad. This will help you understand how your investments and financial plan perform through a variety of market conditions.

Bear markets provide advisors the opportunity to share financial plan results during a time where investment performance is typically negative. Monte Carlo analysis has become the industry standard for retirement planning. Monte Carlo software typically runs hundreds to thousands of randomized simulations that generate an overall statistical probability of success based on an individual’s financial inputs. The output displays a percentage measuring the likelihood one can meet their goals. This is a great way to stress test variables such as longevity risk, inflation, spending desires, and lump-sum expenditures. Bear markets also provide a good time to audit withdrawal rates from income-generating accounts and to discuss the impacts of a sequence of return risks.

Lastly, advisors should provide context around how your accounts are performing relative to global stock and bond market benchmarks. Asset allocation – the ratio and composition of your stocks and bonds – should also be confirmed to align with your long-term planning needs. While negative returns are disconcerting, it’s important to understand that the SP500 suffers a 10% market correction on average once per year and a bear market decline of 20% or more once every three years. While downturns are normal, market recoveries have historically been longer and stronger to the upside. Bailing out of equities during bear markets locks paper losses into actual losses. Advisors and investors that take a long-term investment view tend to be rewarded with positive returns over time.

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