Investing money for the first time may make your clients feel like diving into the deep end of the pool. It can be nerve wracking.

If they ultimately decide to, here are 5 tips to help new investors get started during a market downturn.

1. “Have an emergency fund.”

Talking about emergency planning can be a great way to get new investors comfortable with the idea of investing. Help your client set about three to six months’ worth of expenses and recurring payments aside in an emergency fund. At Betterment, this bucket of money that is most often held in either a high-yield cash account or very low-risk investments.

Having an emergency fund will give them the freedom to invest the rest of their money more aggressively, and with less worry.

2. “Invest at your own pace.”

Investing a lump sum all at once can be scary. Even though studies show that a lump-sum investment will outperform two-thirds of the time, your clients may not feel comfortable doing that, which is okay. 

Another approach that may make clients feel more comfortable is to invest a little bit at a time. One of the best ways to do this is by helping your clients set up an auto-deposit, where they choose the amount (ie. $300) and frequency (ie. monthly). That way your client set their own pace.

3. “Focus on your time horizon.”

Remind your clients that not all of their investments need to have the same risk level. 

Your clients are likely investing for many different financial goals at the same time, like a home down payment, future college expenses, or retirement. Each of these financial goals likely has its own time horizon, and thus should be invested differently. 

Breaking your clients’ investments into goals allows you to better control their risk and build a personalized investing plan, as well as make them feel more comfortable with how much risk they are taking on compared to how soon they’ll need access to a particular bucket of money. 

Betterment automatically adjusts your clients’ allocations over time to account for market performance and their goals’ time horizons, ensuring that we work for you and your clients through all the ups and downs.

4. “Pay attention to historical context.”

As a new investor, your client may not have much context or know what to expect in terms of performance. 

It can be helpful to let clients know that many others before them have felt nervous about markets. From 1854 to 2009, the U.S. has been through 33 economic downturns. On average, these downturns last for about 1.5 years. Remind them that, after each of the past downturns, the stock market has fully recovered and even surpassed previous all-time highs. 

That is all to say that you should make sure clients understand that they have been through many market dips in the past and likely will see many more in the future. They are an inescapable part of investing and are something that all investors, new and old, should learn to cope with. 

Though your clients may be tempted to withdraw all of their investments or even halt their auto-deposits, now is the time to stay the course. History can show them that the market, and thus their portfolio, will recover.

5. “Focus on what you can control.”

Your clients can’t control the stock market. They also can’t control the news, inflation, GDP growth, or unemployment rates. 

However, they can control how much they save, how much risk they take, how diversified they are, and how they react when markets get scary.

In the long run, push your clients to focus on what they can control, and encourage them to do their best to ignore what they cannot control.

Help clients make educated decisions about their investments.

New investors should not be discouraged by market dips. 

At Betterment, our passive investing model is derived from the idea that taking action based on market movement can be detrimental: contrary to what your clients might think, this could actually lower their returns

Despite this, when volatility hits, we are working for your clients. Our automatic allocation adjustments, portfolio rebalancing, features like tax loss harvesting, and updated personalized advice can help your clients ride out a market downturn.

Ultimately, being thoughtful about your clients’ finances and overall risk in their portfolios during market uncertainty can help them weather the storm, no matter how long the downturn lasts.


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This article was published on April 30, 2020

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