As we brace ourselves for ‘Liberation’ Day US tariff announcements later today, market turbulence looks set to continue. In these uncertain times, it’s more important than ever that financial advisers must reinforce the core investment principles of risk, reward, and reality, says Katie Brinsden (pictured), Managing Director at Truly Independent, in her latest blog for IFA Magazine. By managing expectations and emphasising the value of a long-term approach, Katie stresses below how advisers can help clients navigate uncertainty and stay the course toward financial success.
It was still common during my school days to refer to the fundamental skills taught in the nation’s classrooms as “the three Rs.” For those of you too young to remember, I should explain that this was deemed a catchy framing of “reading, writing, and arithmetic.”
For the phrase to work, of course, it was necessary to compromise. Since only one component of the trio actually began with an R, it turned out that our futures lay in mastering “reading, ’riting and ’rithmetic” – not an especially pleasing triad for the pedants of this world.
Today, with 2025 bringing even more market ups and downs than its predecessor, the adviser community might wish to give thought to another three Rs. In this case, thankfully, no cop-out apostrophes are required.
The troika in this instance consists of risk, reward, and reality. We are all familiar with the first two, but the third is assuming ever-greater significance as investors endeavour to accept volatility as a new normal.
Volatility as a constant
As every adviser is aware, there are many scenarios in which clients’ confidence can be shaken. For example, there was understandable alarm when equities and bonds tumbled in tandem amid soaring inflation in the wake of the COVID-19 pandemic.
The likelihood at present seems to be that markets will now deliver a dizzying blur of losses and gains. Citing drivers including geopolitical tensions, technology, and hyperconnectivity, Financial Conduct Authority Chief Executive Nikhil Rathi has spoken of “volatility as a constant.”
We have already witnessed this phenomenon recently. Anyone who checks their investments at frequent intervals – seldom a brilliant idea, by the way – will know it only too well.
Many investors will have seen a notable boost in their wealth in the aftermath of Donald Trump’s re-election in early November. Just a month or so later, in light of a hawkish speech by US Federal Reserve Chairman Jay Powell, they will have seen an equally conspicuous slump. Fears over tariffs and trade wars continue to fuel uncertainty.
The emotional rollercoaster of investing
This sort of emotional rollercoaster – euphoria, dismay, delight, disappointment – can persuade clients that investing is more trouble than it is worth. Some find their nerves increasingly frayed. Some become weary of what they perceive to be debilitating setbacks.
As we all appreciate, though, this is why advisers strive to emphasise the importance of a long-term horizon. The evidence overwhelmingly suggests there is merit in holding firm over time. By way of illustration, consider the following.
The S&P 500 can trace its history to the 1920s. According to data stretching back to 1928, the probability of the US’s blue-chip index being up during any given month since those earliest days is 60%.
The picture gets even rosier from there. The probability increases to 75% over the course of a year, 99.6% for a 15-year period, and 100% for any spell longer than a decade and a half.
This translates into rather good news for any near-centenarians who ploughed $100 into the nascent market 97 years ago. Their initial investment would now be worth more than $1.1 million.
Balancing risk, reward, and reality
To say the least, this is a pretty compelling snapshot of how risk and reward can play out in the long run. So where does reality enter the equation?
In the final reckoning, as I have remarked in the past, this is a matter of credible expectation management. Particularly in the current climate, clients must fully understand that the road to financial security is likely to be both bumpy and lengthy.
Fundamentally, this is because investing is not easy. It would be if markets were somehow incapable of falling, but the reality is that they are inherently inefficient even in the best of circumstances – which is ultimately how money is made from them.
As a result, the process of accumulating wealth often tests faith and patience. It can be unpredictable. Bad things occasionally happen. Yet the reality is that in the end, with the help of sensible investment, it tends to work out well.
A lesson worth repeating
Advisers should never tire of highlighting these truths. It may be tempting to think of them as little more than compliance-friendly soundbites, but they are absolutely central to encouraging a pragmatic outlook that underpins a successful financial journey.
The original three Rs continue to form an indispensable basis for learning. By any standard, the three Rs discussed here also constitute a valuable lesson – one that we all have a duty to convey to clients as they face up to the challenges of this year and the years still to come.
Katie Brinsden is Managing Director of Truly Independent.
