How to Reduce Panic in 2 Minutes?

The S&P 500 dropped 3.1% and the global stock market dropped 3.3% during the week of 2019/07/29 – 2019/08/02. It was a meaningful drop but nothing dramatic.

However, the market is supposed to be on the verge of a regime change and people are nervous. The CNN Money Fear & Greed Index shows a clear mood swing.

If you are a financial advisor, what would you tell your clients if they call today?

Our Real-time Risk Monitor visualizes market dynamics to help you understand what is really going on.

On the risk-return chart below, the mini pie charts on the dotted line indicate the actual risks and returns (annualized) of a set of model portfolios for the 1-month period ending 2019/08/02, as compared to the 30-year averages on the solid line.

The most aggressive model portfolio (the rightmost one) consists of 70% US stocks and 30% international stocks. It has an annualized return of almost -29.4% during the 1-month period ending 2019/08/02. The good news is that the actual risk of each modern portfolio is much lower than the respective 30-year average.

How do you make sense of this? If you believe that the macro-environment is fine, you can take a look at the longer-term to see if it is time to panic yet.

The charts below show the 3-month and 6-month period ending 2019/08/02, respectively.

The most aggressive model portfolio has an annualized return of -5.5% in the 3-month period ending 2019/08/02, and the risk is lower than the 30-year average.
The most aggressive model portfolio has an annualized return of 13.3% in the 6-month period ending 2019/08/02, and the risk is lower than the 30-year average.

By showing this to your client, you can reduce panic in a few minutes instead of being tied in a 30-minute conversation talking about “buy and hold”, which people may or may not believe.

The truth is, buy and hold may not be wise at times, for example, during a financial crisis. Read this to learn how to monitor financial crises.

Try it here at any time. No need to create an account.

Sign up for 6-month FREE! You will be able to see your own models and client portfolios on this chart.

How to Reduce Panic in 2 Minutes?

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