Market insights and analysis

by Jerry Wagner

Hand-holding. We learned to do it innocently as children, and it continues to carry meaning throughout our lives.

Whether providing comfort, assurance, or assistance, holding hands can be a powerful gesture. As Toni Coleman, LCSW, a psychotherapist and relationship coach, explains, “Research shows that touch, like holding hands, releases oxytocin, a neurotransmitter that gives you that feel-good buzz.”

In the world of investing, hand-holding takes on a figurative meaning. Financial advisers often serve as a steadying presence for investors during turbulent times, offering reassurance and support. This is particularly important when investors face uncertainty and may feel anxious about their portfolios.

How advisers “hold your hand” through tough times

One prominent value proposition often pops up on the websites of advisers: “We’ll help you manage your investment behavior.”

For most advisory services using such a value proposition, they really mean, “We’ll hold your hand when the bear market comes.” Their primary purpose is to support a “buy-and-hope” mode of investing by working to keep you invested and to avoid the common investor mistake of selling out at or near market bottoms.

A recent article tells us that there are at least seven different ways we can hold hands. I think numbers four (the firm but non-interlaced grip) and six (one hand gently resting on top) may be applicable here.

In hand-holding technique number four, the article says, “The hand-holder may be tightening their grip in a protective way to offer comfort or reassurance if the other is anxious. ...”

I think this is the primary grip used in adviser-investor hand-holding. The adviser is trying to comfort the investor and assure them that they are doing the right thing in waiting out a market decline.

However, if the decline lasts long enough, the hand-holding may change character. With hand-holding technique number six, the article says it doesn’t necessarily mean that you are “doomed,” but you do need to pay attention: “When you put your hand on top of someone else’s and let it rest for a minute while you speak, it may mean that you’re delivering bad news.”

Can we alleviate the need for investor hand-holding?

The significant declines (the 50% to 75% variety) experienced not once, but twice, in the first decade of this century meant different things to different investors. Some were young and had time to start over again. Others were older and saw their dreams of an early retirement substantially delayed or abandoned. Some retired investors were forced to return to the workforce or materially reduce their standard of living.

When I started Flexible Plan Investments (FPI) in 1981, I did so with the belief that I could create a different type of asset-management service. My market timing would be so accurate that it would alleviate the need for investor hand-holding.

In the ensuing 40-plus years that we have been in business, I learned that no market-timing approach is so consistently precise in its timing that counseling isn’t still needed. As I moved into using trend-following strategies, in search of wealth-preservation methods for different asset classes, I had to settle for trades “close to” bottoms and tops instead of being precisely at them.

Since trend following works in many but not all market environments, I sought other types of strategies. Finally, I realized that only by using multiple types of strategies in a single portfolio could I get close to my goal.

But, alas, perfection is elusive, or more accurately, impossible. I have not been able to eliminate the need for anxious clients to seek counsel (and, yes, hand-holding); hopefully, our approach has reduced the need.

The value of dynamic risk management in volatile times

When global politics and economic events cause markets to become as volatile, it’s not surprising that investors look for hand-holding. Even financial advisers that work with us need to spend some hand-holding time with their clients. Part of that time is used to explain the value of an asset manager, like FPI, that employs dynamic risk management.

First, and most importantly, investors use us so that they don’t have to make their own investment decisions. They don’t have to try to understand the conflicting messages of the markets. They don’t have to worry about being right or wrong. We take all the actions for them.

Dynamic risk management allows for a proactive response to changing market conditions. By using multiple strategies in a single portfolio, it’s possible to manage risk more effectively and help investors navigate uncertain markets.

At FPI, we’ve developed a range of tactical strategies designed to manage risk across different market environments. While no strategy can eliminate the need for reassurance, our approach seeks to reduce the frequency and intensity of those hand-holding moments.

How we can help make hand-holding conversations more valuable

Even with dynamically risk-managed strategies in place, there will always be times when investors need guidance and support. Your financial adviser is well-equipped to offer this, using the tools and resources we offer to help investors evaluate their FPI portfolios and stay on track.

For example, the OnTarget Benchmark Monitor (available after you log in to your account on the OnTarget Investing website, ontargetinvesting.com) helps you see how your investments are performing relative to customized benchmarks, providing clarity and insight.

Ultimately, while hand-holding may be necessary during volatile periods, a thoughtful and dynamically risk-managed approach to portfolio management can help both advisers and investors feel more confident about the future. As always, we here at FPI are here to help both of you achieve that goal.