The market has two to three major corrections each decade, and always recovered afterwards to new highs.
Variations of this principle echo through advisory offices across the country during every market downturn. As financial advisors, a fundamental part of our job is talking clients off the proverbial ledge during market corrections and crashes. An equally important challenge, and one that receives far less attention, is pulling clients’ heads out of the clouds.
When markets plummet, clients often seek to abandon their long-term financial and investment plans. Conversely, they are often tempted to derail those same plans when market conditions are excessively favorable. “Maybe we should put just 20% of our money in Nvidia /Bitcoin / leveraged funds/ another ‘YOLO’ or high-risk, high-reward asset.” Every advisor has heard versions of this sentiment during euphoric market phases.
This presents a unique challenge in financial advising. To calm investors during downturns, an arsenal of historical data, charts, and evidence is available to prove that historically, markets have always recovered. This factual approach is effective because the pattern is well-established.
Managing euphoria is different. Booming markets often come with powerful narratives of fundamental change that convince investors that traditional strategies will not suffice, and aggressive positioning is not just desirable, but necessary to keep pace with a new reality. History offers little reassurance here because these moments always feel unprecedented.
In the late 1990s, investors piled into internet stocks, convinced that brick-and-mortar businesses were obsolete. The dot-com bubble promised a new economic paradigm where profits were secondary to “eyeballs” or views, i.e. a massive user base. Growth must be maintained at any cost. It was not just speculation; it was the future. Until, at least from an investing perspective, it wasn’t.
Sir John Templeton famously warned, “The four most dangerous words in investing are ‘this time it’s different.’ “Each era of market euphoria comes with a compelling story about why the old rules no longer apply. But history shows that markets eventually reassert discipline, and fundamentals still matter.
The best defense against both fear and greed is a well-crafted, long-term plan. A structured investment strategy keeps conversations grounded in clear financial goals, helping clients resist the emotional extremes of both downturns and booms. Interrupting a sound, long-term plan—whether due to panic or euphoria—can be costly. As advisors, our job is not only crisis management during bear markets, but also expectation management under all market conditions.
This material has been prepared for informational purposes only and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
