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Resources for better client conversations

Advisors often find that client conversations about market performance, retirement, and other life events are more effective when they have the right resources. Explore our library as you prepare for your next client meeting.
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When building the right portfolio for your goals, you know that it’s important to diversify or, in other words, not to put all your eggs in one basket.

However, that doesn’t mean a diversified portfolio always feels good. As a matter of fact, I’d say a diversified portfolio never really feels good.

For example, if you see the stock market rising, you may ask yourself, “Why isn’t my portfolio up as much?” And when the market goes down, you may be upset that you lost money. Even if your portfolio held up better than the market, it just doesn’t feel good.

At BlackRock, we call this S&P Envy.

Let’s look at how this played the last 20 years:

During the tech bubble in 2000 through 2002, the S&P 500 dropped about 40%. The diversified portfolio shown here lost money too, but less than half as much. Still, losses hurt – both your wallet and, more importantly, psychologically.

After the downturn, as expected, the market roared back, and the diversified portfolio rose too. But, like in the downturn, not by as much. This is where that “Envy” aspect really comes into play – the diversified portfolio didn’t “keep up”.

You can see this pattern in each bull and bear market. In each rising market, it feels like diversification’s working too well by dampening gains and, in each falling market, it feels like diversification’s not working well enough, allowing losses to creep in.

Yet these same characteristics that hurt on each rise and fall are what can help diversification win across market cycles.

In this example, even though it felt like the portfolio was always losing, it actually outperformed over the long-term. Remember: emotions are short-term feelings, but they can cause us to lose our long-term perspective.

Explain the benefits of portfolio diversification

Use our chart to ensure that your clients recognize the importance of portfolio diversification and help them overcome ‘S&P Envy’ when comparing their portfolio to stock market returns.

Explain the variability of how asset classes perform
Asset class outperformance is unpredictable year-to-year. Show clients how a diversified portfolio can help them seek steady returns and manage risk over the long term.
Help clients focus on long-term investment goals
Clients can get sidetracked from long-term investment goals when short-term volatility and large losses occur. Use our chart to remind clients not to panic during downturns.
Show clients how inflation affects investments
Inflation erodes purchasing power and increases the price of goods. Share our chart to remind clients of the impact of inflation when determining how to invest their money.
Illustrate how interest rates correlate with bond returns
Long-term bond returns have historically followed the direction of interest rates. Help clients prepare their portfolios for changing rate regimes.

Most investors know that a well-diversified portfolio is key to long-term investing success. But not all investors understand why. In fact, it might surprise you to learn that a portfolio’s ability to achieve strong long-term returns often has more to do with how well it withstands downturns in the market than how it performs during upswings.

You can see in the chart on the left that over the last couple of market cycles, the S&P 500 has had large bull markets but also large, profound downturns.

If you’re like most investors, those downturns can be hard to stomach. Which is why the chart on the right shows a lower volatility portfolio with a downside capture of 75. “Downside capture” is how well the portfolio performs during negative performance of the benchmark. To use an even number, for example, a downside capture of 50 means that if your benchmark, let’s say the S&P 500 in this situation, returned -10%, your portfolio would return -5%.

A lower volatility portfolio usually doesn’t have as much octane on the upside, so we assumed an upside capture of 75 as well. Remember, an “upside capture” is just like a downside capture but for positive performing time periods.

If we compare this hypothetical portfolio with the S&P 500, we can see the power of “losing less” by having a lower downside capture in action. Since 2007, this portfolio grew more than the market despite capturing only about three-quarters of the positive returns of the market. The key reason: the portfolio didn’t lose as much, so it didn’t have to work as hard in the upturns to recoup its losses. As we like to say, roughly three-quarters of the up and three-quarters of the down got you all the up with only three-quarters of the down.

The magic is in the math. When you have a relatively small loss, like 10%, bouncing back only takes a bit more positive return that the downturn itself. In this case, about 11%. But as the losses get larger, such as 50% percent, you need a much higher return to break even. In this case, about double the loss. Understanding this math is key to understanding why a portfolio designed to reduce the downside may better suit your needs without sacrificing your goals.

Discuss how limiting losses can help maximize investment returns

Share our chart with clients to explain why limiting portfolio losses during a downturn can have a bigger overall impact across market cycles than capturing returns in a bull market.

Illustrate the benefits of staying invested through volatility
Historically, the stock market’s worst days have clustered together, followed by a rebound in returns. Encourage clients to stay invested during volatility using our chart.
Explain why investing in international stocks is valuable
Use our chart to help clients recognize the advantages of maintaining a geographically diverse portfolio despite sometimes lower returns from international stocks.
Share strategies with clients for riding out volatility
Sometimes investors want to sell out during volatile markets. Educate clients on the benefits of 'time in the market' versus 'timing the market' and dollar-cost averaging.
Compare a diversified portfolio to individual stocks
Individual stocks can provide great upside potential, but also great risk. Use our chart to demonstrate how diversification can set up a portfolio for long-term success.

Sometimes what poses the biggest risk to achieving your long-term goals is your emotions. This is especially common during large fluctuations in the market but can also happen during ordinary market cycles.

The further the market goes up, the easier it is to believe it’s going to go up forever, which can lead to buying near the top of the market. On the other hand, the lower the market falls, the more fearful you may become of losing more money, which can lead to selling near the bottom of the market.

Following this pattern is called “herding”. When the market is high, it’s because many other people have already bought in – which is why buying in would be considered “following the herd”. When the market is low, it’s because many other people have already sold.

As you might have guessed from the title of this piece, “following the herd” often backfires over the long-term.

As you can see in this chart, doing what everyone else is doing (represented by the orange bar) produced significantly smaller average returns than going against the herd, or even the market average itself. That’s why it’s really important to make your decisions based on your plan and convictions, not on market trends.

In the words of the great investor Warren Buffet, “Be fearful when others are greedy, and greedy when others are fearful.” But also remember, time in the market almost always trumps timing of the market.

Explain why emotional investing can hurt portfolio performance

Investing based on emotions can lead investors to buy high and sell low. Use our chart to help clients overcome their desire to make investment decisions based on emotions rather than convictions.

Help clients manage investment risk in retirement

While investors have learned how to invest to accumulate wealth, they often overlook the changes needed to their portfolio as they enter retirement and start withdrawing. Educate clients on the importance of downside protection to sustain their lifestyle through retirement.
Protect against “dollar cost ravaging”
Explain why sequence of returns matters during retirement
Our chart helps clients recognize that variability of returns and the sequence of those returns can have a significant impact on portfolio value when withdrawing money.
Share key facts about Social Security with clients
Social Security can be complex and knowing the basics and current figures is key. Share this ‘cheat sheet’ to help your clients make a more educated decision.
Help clients navigate Medicare
Clients approaching 65 have important decisions to make about Medicare. Share this 'cheat sheet' with your clients to help them make the best decision possible.
Share this year’s contribution limits and tax rates
If your clients are saving for retirement, looking at gifting opportunities or concerned about taxes, share this 'cheat sheet' to help them make more informed decisions.

Explain the impact of withdrawal rates on investment portfolio value

The amount of money clients withdraw in retirement affects how long their wealth will last. Help clients find the right balance to meet their short- and long-term needs.
Withdrawal rates chart

Help clients foster well-being in retirement

Help your clients lead a life in which they feel fulfilled, engaged and connected. Discuss characteristics of flourishing individuals and ideas to make a ‘good life’ even better.
Create a good life
Discuss the importance of healthy friendships
Friendship is a key predictor of healthy aging. Share our worksheet to help clients build wholesome friendships which improve their quality of life in retirement.
Help clients discover their purpose in retirement
Evolving throughout life, one's purpose or 'reason for being' takes on new meaning in retirement. Help your clients define and embrace their purpose by sharing our worksheet.
Assist clients in identifying their ideal home in retirement
An ideal home is one which has all of the ingredients for a life of well-being. Our worksheet helps clients choose the home which best satisfies their needs and wants.
Explain how to enhance vitality in retirement
Vitality is an indicator of the energy and vigor which allows one to thrive. Help clients boost their vitality by optimizing their physical and mental well-being.

Help clients decide where to live in retirement

Do your clients know where they want to spend their retirement? The answer may change over time. Use our worksheet to discuss key questions and considerations with clients so they can plan where to live.
Decide where to live in retirement
Ensure clients secure their wealth with an estate plan
As clients age, their finances become more complex. It becomes critical to have legal documents in place. Help clients ensure that their wishes are documented and safeguarded.
Help clients streamline their financial plans for the future
It’s impossible to predict the future. Share our worksheet to help clients prepare for the unexpected, and ensure that their finances and financial plans are protected.
Support bereaved clients in achieving financial independence
The loss of a spouse can leave both emotional and financial scars. Our worksheet enables you to empathetically help your clients navigate this difficult time.
Help clients overcome financial challenges after divorce
Divorce is challenging. Help your clients take the best next steps to reestablish financial independence by sharing our worksheet.

Align on an investment plan with your clients

Use this worksheet to create an investment policy statement (IPS) with each client. Ensure that their IPS takes their goals, constraints and asset allocation into account.
Investment policy worksheet

Help your clients articulate their investment goals

Everyone’s goals are different, whether it be saving for retirement, helping family, financial independence or traveling around the world. Use our worksheet to help identify clients’ goals and establish their financial plan.
Your wealth. Your goals.