Loss aversion is a well-studied phenomenon in behavioral economics, one in which people tend to “prefer avoiding losses to acquiring equivalent gains.” In other words, losing money feels worse than making money feels good – and, when markets are volatile, many investors react to this feeling by selling stocks to avoid further losses.
After eleven years of a nearly uninterrupted bull market in the S&P 500, the past two weeks have seen the worst volatility in stocks since the end of 2008. Not surprisingly, this time is no different. Reuters notes that “U.S. investors pulled $20.3 billion out of equity funds in the week that ended Wednesday, completing the largest two-week retreat from the stock market since December 2018.”1 Advisors are seeing this firsthand:
Todd Morgan, chairman of Los Angeles-based Bel Air Investment Advisors, said that this week two clients called to liquidate all of their stock holdings. That compares to receiving “virtually none” such calls last year, when the S&P 500 soared over 30%. “The more days we have down in a row the more panic calls we get and it grows exponentially”1
Where does the money go?
“Investors flee stocks and bonds, pile into cash,” said one recent headline from MarketWatch2, and the accompanying graph says it all. Fund flows for the week ending March 4th show that nearly 40 billion dollars went into short-term money market instruments.
Are your clients or prospects stashing cash?
One easy way for advisors to start learning about clients’ and prospects’ cash positions is by inviting them to use Flourish Cash. Advisors are able to view cash balances in clients’ Flourish Cash accounts as well as their linked checking and savings accounts, and prospects can also share this information through Flourish Cash.3 Having visibility into client cash makes it easy to keep track of assets that remain in cash and engage clients in thoughtful conversations on how to rebalance their portfolio to better accomplish goals.
Interested in learning more? You can click here to find more information about how Flourish Cash can help you get visibility into held-away cash and bring those dollars into your orbit. Ensure you are seeing the full picture.
1 David Randall and April Joyner. “Turbulent markets test U.S. retail investors as coronavirus fears rage” Reuters, 2020, https://www.reuters.com/article/health-coronavirus-usa-investors/turbulent-markets-test-us-retail-investors-as-coronavirus-fears-rage-idUSL1N2AZ1KM
2 Andrea Riquier. “Investors flee stocks and bonds, pile into cash, fund flow data show” MarketWatch, 2020, https://www.marketwatch.com/story/investors-flee-stocks-and-bonds-pile-into-cash-fund-flow-data-show-2020-03-06
3 Advisors’ ability to view client account information is subject to applicable privacy laws and clients’ consent to such sharing. The ability to view clients’ external account balances is limited to those external accounts that are programmatically linked to Flourish Cash.