How about this weather?
How many awkward conversations have you dropped that line in lately? Maybe the most clichéd conversation filler ever used, “how about this weather?”, could be the perfect way to introduce market volatility and investment diversification into your client conversations.
Let me elaborate.
The Cincinnati area breeds volatile weather (where we are headquartered), especially as seasons change. We recently (April) saw 70 degrees and sunny, hail, thunderstorms, and a tornado watch – all in a single day.
If that isn’t volatility, I don’t know what is.
But it isn’t far from the patterns we’ve seen in the market. The Dow has averaged plus/minus 230 points per session over the last two weeks.
What can the weather teach us about market volatility?
It tells us two things. First, that volatility is out of our control. Like the weather, it’s going to happen regardless of what we do. Second, it shows us that if we are planning to be exposed, we need to prepare for the possibility of adverse conditions.
How can we use that lesson to engage clients?
By using it to draw parallels with how their money is impacted by market movement.
Investing in the market is like placing your money in the elements. It must weather, literally, what comes – rain or shine. When skies are clear, your money thrives. It’s happy, enjoying the warmth of the sun. However, when it turns cold and rainy, your money suffers. It’s fully exposed to the gloom of getting fully soaked with nowhere to go.
However, you can take measures to protect that money from the elements.
Strategy One – actively seek better weather (Tactical Beta Strategies).
When the weather gets dicey, you can help the money find patches of sun through tactical beta. Tactical beta acts as a diligent guide who seeks to make the most of every situation. As the rain picks up in your area, tactical beta finds another area with more favorable conditions.
Strategy Two – find a way to thrive in bad weather (Alpha Strategies (Diversifier)).
A diversifier strategy is like giving that money an umbrella stand. What was once a threat is turned into an opportunity. Instead of seeking shelter elsewhere, your money can find value in the midst of adverse conditions. However, on the flip side, when the sun shines profits from the umbrella stand aren’t going to be as good. Owning the umbrella stand creates overhead in good weather that might not be covered by the returns of operation.
Pairing each these strategies with assets designed to capture market movement (Strategic Beta Strategies) can help you better prepare clients for a variety of circumstances.
Is this a silly analogy? Yes, but it works. Everyone understands bad weather. We’ve all enjoyed a sunny day, and we’ve all been caught in the rain. An investment is the same. We can’t control the weather, but we can control how well we’re prepared to handle it – especially in seasons of volatility.
Advisors can help their clients prepare for any “weather” through Market Movement Strategies, a process-based investment story that diversifies portfolios through three distinct mandates. Learn more about Market Movement Strategies today.