“The issue is there has been a greater correlation across different asset classes because of the distortion caused by the programme of quantitative easing that has been adopted by a number of central banks. This means that the benefits of diversification are not as strong as they have been in the past.”
The do-nothing prescription in extreme volatile markets might be a bitter pill to swallow for many clients, but it could pay dividends when it comes to accomplishing the goals of their long-term investment plan, Mr Dampier says.
After all, financial plans should factor in volatility from the outset. The portfolios of clients approaching retirement should be positioned in more conservative assets, he added.
The difficultly for advisers is ensuring this approach is not misconstrued by clients as inertia. This idea can be debunked by clear communicating with clients, according to Marlene Outrim, managing director of Cardiff based UNIQ Family Wealth.
She adds that advisers should seek to educate their clients on the likely effect of macro events, such as the Brexit vote, in advance, and explain how their portfolio was constructed to mitigate the effects of either result.
She says: “We are not stock-pickers. We leave that to fund managers. Our job is to ensure that our clients have a portfolio that is tailored to their assets and their risk profile. We do not make knee-jerked reactions.”
She adds: “It is not a do-nothing approach, but more of a sit-tight approach. It is about saying to the client ‘yes, we are going to make some changes to your portfolio, but not because of Brexit or because of a shock election result, but because it is the right thing to do to meet your long-term objectives and risk profile’.”
Myron Jobson is a features writer of Financial Adviser
Key Points
The Chicago Board Options Exchange Volatility Index shows there is a direct correlation between recent macro events and peaks in volatility
The US election result is a good example to show jittery clients that heightened market volatility over macro events is only likely to be short-lived
The difficultly for advisers is ensuring that a sit-tight approach is not misconstrued by clients as inertia
