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Scott's Column

When markets decline, client anxiety increases. The correlation between the two never varies.

Last year was a good example. Stocks down. Bonds down. Client anxiety was very high.

The cause of this anxiety is mainly attributable to one thing. We hate uncertainty.

Our brains crave certainty. In fact, our brains are essentially prediction machines that create possible scenarios about the future to help relieve the anxiety associated with not knowing.

When markets decline, clients feel a sense of uncertainty and this raises their anxiety levels.

While understandable, this sense of anxiety is misplaced.

There is nothing more certain in investing than that markets will recover whatever temporary declines in value they experience and then continue upward.

The S&P 500 Index is at about the same level now that it was at 2 years ago.

So, everyone who ever invested in the stock market prior to June 2021 has made money.

And anyone who invested in the stock market since May of 2022 has also made money.

No credible investment professional believes the stock market will not eventually reach the level it reached in December 2021—the previous market high—and surpass it.

That is about as certain as things get in this life. If you stay put and don’t panic, you’ll do OK.

So, I submit that the problem that leads to client anxiety in rough markets is really not an uncertainty problem. It’s an education problem.

Advisors could do their clients a tremendous service by preparing them from day one for the bumpy ride they will experience, but teach them the reality that, with patience, all will be well.

The greatest service an advisor can provide is teaching clients how to behave as successful investors. That largely revolves around helping them overcome rough-market anxieties.