Many financial advisors spent most of Monday calming clients anxious about the panic selling that led to the worst day for U.S. stocks since December 2008.

U.S. stocks — already hurting due to coronavirus fears — tumbled more than 7% Monday after oil prices fell to levels not seen since the Gulf War in 1991. Wall Street’s S&P 500 plunged 7% shortly after the opening bell, triggering a temporary halt in trading at the New York Stock Exchange. At the close, the S&P 500 shed 7.6%, while the Dow Jones Industrial Average lost 7.8%.

Déjà vu

Sheryl Rowling, who experienced déjà vu on Monday when stock prices quickly went south, is reiterating the lessons of past market crashes to clients to help them stand their ground.

"This is bringing back memories of 2008 — deep plunges and widespread panic," says Rowling, San Diego-based founder of Rowling & Associates, which has more than $340 million in client assets. Rowling is also the head of rebalancing solutions at Morningstar.

"During that time, it was difficult to reassure clients as I was feeling some of the same stress and doubt," she says. "Having lived through that and seeing my clients come out the other side better than ever, I know that ‘this too shall pass.’”

Rowling’s mantra for herself and her clients — then and now — is to “stay the course,” noting that market recoveries often happen in short bursts.

She tells her clients about the twofold dangers of getting out of a falling market: it locks in losses and locks out opportunities to cash in on a big recovery.

Sheryl Rowling

“Although it is tempting to think ‘this time is different,’ it is not. The best course of action is to stay invested, while harvesting tax losses to use during the later recovery and rebalancing to take advantage of buying bargains," she tells clients.

Rowling says her firm “always” keeps around three to six months’ worth of cash liquidity “to avoid having to sell during down markets.”

Due to the extent of Monday’s drop, “We recommend that clients not make any large withdrawals at this time,” she says. “We encourage our clients to live their lives and let us do the worrying.”

Defensive

Other advisors prepared their clients for Monday — and other potential market crashes — by positioning them defensively.

“We’ve been taking more off the table than regular rebalancing,” says Charles Flowers, a Columbia, S.C.-based advisor at Abacus Planning Group.

Thus, Flowers says most of the clients who called him on Monday wanted to know: “What’s the plan? When is the buy-in point?”

Flowers says he told clients he was waiting for a 20% drop from the highs of certain stocks this year.

“No one knows for sure that will be the end; it could be 50%,” Flowers says, referring to the potential drop in stock prices. But based on historical data, his firm has opted for the 20% decline as its starting point to get back into equities, he says.

True North Advisors, an RIA in Dallas, is “valuation oriented” and has been “positioned defensively in higher-quality equities and credits,” says Dhruv Maniktala, the firm’s principal and vice president of global investment strategy.

That’s because of the “expensive valuations and extended balance sheets in the markets,” even before the coronavirus scare or oil price wars, he says.

“In our opinion, markets remain significantly overvalued even after [Monday’s] price action, and while we may add some exposure in certain areas that look interesting, it would take a more significant move down for us to be really interested in the market in aggregate,” Maniktala says.

Hanging in there

Avani Ramnani, director for financial planning and wealth management at New York-based RIA Francis Financial, says her firm is recommending that clients “not let the news headlines scare them.”

“The reality is that while there are more sellers than buyers in the market, someone is still buying. There are long-term investors out there who believe that this is a good buying opportunity and that they should invest the cash sitting on the sidelines,” she says.

Ramnani says her firm has a webinar for clients and prospects about the impact of the coronavirus and oil prices on the markets scheduled for next week.

“Our clients want to know what our thoughts are on the current events and are looking for reassurances,” she says. “For the most part, our clients are hanging in there.”

For now, Ramnani is telling clients the coronavirus fears “are being escalated by social media, causing a panic. While some companies are definitely going to have poor sales while this terrible situation is going on, there are others that will surely benefit.”

Ramnani adds: “Past health scares such as these have shown that company sales recover in a few months once things improve. This helps stock markets recover from the fall in a few months too.”

Click here to read what Edward Jones, Ameriprise Financial, LPL Financial and Stifel are highlighting about the oil price wars’ impact on financial markets and overall investor sentiment.

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