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5 Tips to Give to Inexperienced Investors During A Market Dip

If your clients are first-time investors, helping them make that initial deposit and setting up their portfolios can be difficult. During a market dip? Even more so. Here are 5 talking points to help you communicate with inexperienced investors in times of volatility.

By Nick Holeman, CFP®

Director of Financial Planning, Betterment |

Published Apr. 30, 2020 | Updated Jul. 18, 2022

5 Tips to Give to Inexperienced Investors During A Market Dip Jul 18, 2022 2:20:00 PM If your clients are first-time investors, helping them make that initial deposit and setting up their portfolios can be difficult. During a market dip? Even more so. Here are 5 talking points to help you communicate with inexperienced investors in times of volatility. Investing money for the first time may make your clients feel like they're diving into the deep end of the pool. It can be even more nerve-wracking when market conditions are choppy. If they ultimately decide they're ready, here are 5 tips for helping new investors get started during a market downturn. 1. "Have an emergency fund." Talking about emergency planning can be a great way to get new investors comfortable with the idea of investing. Help your client set about 3 to 6 months worth of expenses and recurring payments aside to build an emergency fund held in a cash account or a low-risk investment portfolio. Having this safety net will give your client the confidence to invest the rest of their money more aggressively—and with less worry. 2. "Invest at your own pace." Lump sum investing allows clients to optimize their money immediately in an appropriate portfolio strategy based on their specific goals and time horizon. Although this approach may generate a better investment outcome over the long term, inexperienced investors can be hesitant. Your more risk averse clients may prefer to dollar-cost average, spreading out risk during volatile market periods. Another approach that may make clients feel more comfortable is to invest a little bit at a time. One of the best ways to do this is by helping your clients set up an auto-deposit schedule where they choose the investment amount (i.e., $300) and frequency (i.e., monthly). By setting their own pace, your client can feel more secure moving forward. 3. "Focus on your time horizon." Remind your clients that not all of their investments need to have the same risk level. Your clients are likely investing for multiple financial goals at the same time, such as a home down payment, future college expenses, or retirement. Each of these financial goals likely has a different time horizon and should be invested accordingly. Breaking your clients’ investments into goals allows you to better control their risk and build a personalized investing plan. It can also make less experienced investors feel more comfortable with the level of risk they are taking on in proportion to how soon they’ll need to access a particular bucket of money. Betterment for Advisors' powerful portfolio-building tools enable you to serve your clients' needs and investing preferences. Our tooling automates rebalancing, tax-loss harvesting, deposits, and more, so you can more efficiently manage your clients' plans. 4. "Pay attention to historical context." As a new investor, your client may not have much context or know what to expect in terms of performance. It can be helpful to let clients know that many others before them have felt nervous about markets. From 1942 to 2022, the U.S. has been through 15 bear markets. On average, bear markets last for about 11.3 months, which tend to be significantly shorter than bull markets which last 4.4 years on average. Remind them that, after each of the past downturns, the stock market often recovers. You should make sure clients understand that there have been many market dips in the past, and they will likely see many more in the future. They are an inescapable part of investing and all investors, new and old, should learn to cope with volatility. Though your clients may be tempted to make major withdrawals or even halt their auto-deposits when the market dives, remind them that now is the time to stay the course. History shows us that the market, and their portfolio, can recover. 5. "Focus on what you can control." Your clients can't control the stock market. They also can't control the news, inflation, GDP growth, or unemployment rates. However, they can control how much they save, how much risk they take, how diversified they are, and how they react when markets get scary. In the long run, push your clients to focus on what they can control, and encourage them to do their best to ignore what they can't. New investors should not be discouraged by market dips. At Betterment, our passive investing model is derived from the idea that taking action solely based on market movement can be detrimental—contrary to what your clients might think. Ultimately, being thoughtful about your clients' finances and overall risk in their portfolios during market uncertainty can help them weather the storm, no matter how long the downturn lasts. When volatility hits, rest assured that we are working for your clients. Our automatic allocation adjustments, portfolio rebalancing, and tax-loss harvesting can help your clients ride out a choppy market.

Investing money for the first time may make your clients feel like they're diving into the deep end of the pool. It can be even more nerve-wracking when market conditions are choppy.

If they ultimately decide they're ready, here are 5 tips for helping new investors get started during a market downturn.

1. "Have an emergency fund."

Talking about emergency planning can be a great way to get new investors comfortable with the idea of investing. Help your client set about 3 to 6 months worth of expenses and recurring payments aside to build an emergency fund held in a cash account or a low-risk investment portfolio.

Having this safety net will give your client the confidence to invest the rest of their money more aggressively—and with less worry.

2. "Invest at your own pace."

Lump sum investing allows clients to optimize their money immediately in an appropriate portfolio strategy based on their specific goals and time horizon. Although this approach may generate a better investment outcome over the long term, inexperienced investors can be hesitant. Your more risk averse clients may prefer to dollar-cost average, spreading out risk during volatile market periods.

Another approach that may make clients feel more comfortable is to invest a little bit at a time. One of the best ways to do this is by helping your clients set up an auto-deposit schedule where they choose the investment amount (i.e., $300) and frequency (i.e., monthly). By setting their own pace, your client can feel more secure moving forward.

3. "Focus on your time horizon."

Remind your clients that not all of their investments need to have the same risk level.

Your clients are likely investing for multiple financial goals at the same time, such as a home down payment, future college expenses, or retirement. Each of these financial goals likely has a different time horizon and should be invested accordingly.

Breaking your clients’ investments into goals allows you to better control their risk and build a personalized investing plan. It can also make less experienced investors feel more comfortable with the level of risk they are taking on in proportion to how soon they’ll need to access a particular bucket of money.

Betterment for Advisors' powerful portfolio-building tools enable you to serve your clients' needs and investing preferences. Our tooling automates rebalancing, tax-loss harvesting, deposits, and more, so you can more efficiently manage your clients' plans.

4. "Pay attention to historical context."

As a new investor, your client may not have much context or know what to expect in terms of performance.

It can be helpful to let clients know that many others before them have felt nervous about markets. From 1942 to 2022, the U.S. has been through 15 bear markets. On average, bear markets last for about 11.3 months, which tend to be significantly shorter than bull markets which last 4.4 years on average. Remind them that, after each of the past downturns, the stock market often recovers.

You should make sure clients understand that there have been many market dips in the past, and they will likely see many more in the future. They are an inescapable part of investing and all investors, new and old, should learn to cope with volatility.

Though your clients may be tempted to make major withdrawals or even halt their auto-deposits when the market dives, remind them that now is the time to stay the course. History shows us that the market, and their portfolio, can recover.

5. "Focus on what you can control."

Your clients can't control the stock market. They also can't control the news, inflation, GDP growth, or unemployment rates.

However, they can control how much they save, how much risk they take, how diversified they are, and how they react when markets get scary. In the long run, push your clients to focus on what they can control, and encourage them to do their best to ignore what they can't.

New investors should not be discouraged by market dips. At Betterment, our passive investing model is derived from the idea that taking action solely based on market movement can be detrimental—contrary to what your clients might think. Ultimately, being thoughtful about your clients' finances and overall risk in their portfolios during market uncertainty can help them weather the storm, no matter how long the downturn lasts.

When volatility hits, rest assured that we are working for your clients. Our automatic allocation adjustments, portfolio rebalancing, and tax-loss harvesting can help your clients ride out a choppy market.

Betterment for Advisors makes it easy to deliver model portfolios that fit your clients' goals and simplify your day-to-day management—helping you provide personalized service at scale. Connect with us today to learn more.