It’s already clear that 2025 will be another challenging year for advisers and their clients. The list of concerns features some wearily familiar issues, including the persistence of the advice gap, ever-increasing regulation and growing pressures on smaller IFA businesses[1].
Perhaps above all, though, the prospect of market volatility has our industry worried. According to one survey, 91% of advisers believe this year will serve up more of a rollercoaster ride for investors than 2024[2].
Needless to say, volatility can spook clients. Those who check their investments regularly can be especially alarmed by the apparently dramatic short-term swings between gains and losses.
By way of illustration, look at the final throes of last year. Most markets soared on the news of Donald Trump’s re-election, only for the US Federal Reserve’s hawkish pronouncements to drive them all the way back down again virtually at a stroke.
It’s in light of such rapid-fire ups and downs that some clients decide investing just isn’t for them. They figure their wealth would be more at home somewhere less susceptible to fluctuations – say, tucked away in a savings account or stuffed in an old shoebox under the bed.
Of course, we can’t rule out the possibility that a tiny sprinkling of them might be right. No two individuals’ circumstances and preferences are the same, and there may well be instances when simply hoarding cash instils someone with the sense of security they desire.
Yet I think it’s reasonable to say most of us would generally deem such a course of action imprudent. After all, one of the adviser community’s mantras is that investing should be seen as a long-term undertaking.
We all know the drill. Building a firm financial future is a life-long journey. There are bound to be twists and turns along the way, but it’s the destination that counts – and you’ll get there if you hold firm and stay the course.
There are two basic dynamics at play in this narrative: risk and reward. And there are some pretty straightforward and compelling means by which the historically attractive balance between them can be highlighted to help put clients’ minds at ease.
One that caught my eye in 2024 was a study detailing the likelihood of the S&P 500 delivering positive returns over different timeframes. The data stretches back to 1928 and incorporates the index’s earlier incarnations.
The probability of the US’s blue-chip stock market being up during any given month is 60%. Over the span of a year it’s 75%. For 15 years it’s 99.6%, and for any period longer than that it’s 100%[3].
In other words, anyone who has “risked” remaining invested in the S&P 500 for more than a decade and a half has essentially been guaranteed to reap some kind of reward. It doesn’t matter whether the spell in question featured the COVID-19 pandemic, the global financial crisis or even the Great Crash of 1929. Eventually, irrespective of unwelcome developments, there has been a profit to be made.
This is a great illustration of the likely benefits of investing over the long term. In my experience, a decent grasp of the delights of diversification can also prove highly persuasive.
That said, we should also factor in a third R whenever we talk about risk and reward: realism. This brings us to the importance of expectation management, which is a subject I’ve touched on in the past.
As a gently wizened member of Generation X, I can still recall when people who laboured a point were gruffly told: “You sound like a broken record.” You may wish to chide me with whatever the TikTok-era equivalent of this outmoded rebuke might be, but I sincerely feel this is an argument that bears repeating.
Advisers have eminently solid grounds for convincing clients to keep saving and investing in good and bad times alike. We’re dealing in nothing less than facts when we say the rewards should outstrip the risks over the long run.
Yet we also need to make absolutely clear that progress might be not only sporadic but patience-testing. We need to stress that it’s very seldom a case of getting rich overnight and that the road to financial security can often involve significant setbacks and disappointments.
This message shouldn’t be treated as some kind of compliance-friendly box-ticking exercise. Nor should it be regarded merely as a way of covering one’s own backside in the event of an unforeseen cataclysm. It should instead be recognised as a valuable lesson in the realities of steadily accumulating wealth.
Granted, it isn’t particularly glamorous. It might not fill clients with excitement, because it isn’t intended to set pulses racing.
But that’s okay. In my view, it’s far better to cultivate an outlook genuinely defined by rationality and responsibility – not to mention trust in the insight and guidance we aim to provide – than to encourage one characterised by fear or, maybe worse still, fantasy.
Andrew Goodwin is co-founder and CEO of Truly Independent and the author of ‘The Happy Financial Adviser’.
